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📈 Economics
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Parameters
Money Supply (Ms)
MD Intercept (nominal income proxy)
MD Steepness
Key Concepts
•
Money supply (MS)
is controlled by the central bank — shown as a vertical line
•
Money demand (MD)
slopes downward: at higher interest rates, the opportunity cost of holding cash is greater
• Equilibrium sets the
nominal interest rate
• Increasing money supply shifts MS right → interest rate falls (expansionary monetary policy)
• Rising nominal income shifts MD right → interest rate rises
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