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Unformatted text preview: 3. Are there times when people like to hold more money than at other times? When interest rates are low, the opportunity cost of holding money balances is also low. When interest rates are higher, people forego more interest on interest-bearing securities by holding money balances. As a result, people hold less money when interest rates are high. 4. Sometimes interest rates are higher than at other times. What are some of the reasons for this? The equilibrium interest rate is determined by the supply and demand for money. When the supply of money falls or the demand for money increases, interest rates rise. An increase in the supply of money or a decrease in money demand causes the interest rate to fall....
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- Fall '07