1. What is the basic determinant of

(a) the strength of the transactions demand for money (the location of the transactions demand for money curve) and

(b) the amount of money demanded for assets, given a particular asset demand for money curve? How is the equilibrium interest rate in the market for money determined? Use a graph to show the impact of an increase in the total demand for money on the equilibrium interest rate (no change in money supply). Use your general knowledge of equilibrium prices to explain why the previous interest rate is no longer sustainable.

LO1