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Unformatted text preview: o the pace of financial innovation A change in these factors will shift the MD curve. Supply of Money The Reserve Bank determines the supply of money through its Open Market Operations (OMO). The RBA adjusts the money supply to achieve the rate of interest it requires. The nominal IR is the number of dollars that a borrower pays and a lander receives in interest in a year expressed as a percentage of the number of dollars borrowed and lent. The real interest rate is the nominal interest rate adjusted to remove the effects of inflation on the buying power of money. Real interest rate = Nominal interest rate Inflation rate....
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