Unformatted text preview: So the interest rate will fall The interest rate will continue to fall until equilibrium is restored at re Diagraph 5: An Increase in the Money Supply When the money supply increases from MS0 to MS1 this creates an excess supply of money at re, the excess supply of money is equal to the distance “cd” The interest rate has to fall from re to r1, in order for equilibrium to be restored in the money market. A lower interest rate will persuade wealth holders to hold these excess money balances....
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- Spring '10
- Economics, excess supply, Money market