What is the basic determinant of (a) the strength of the transactions demand for

Question

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 changes in money supply) Use your general knowledge of equilibrium prices to explain why the previous interest rate is no longer sustainable.

Explanation / Answer

Solution clearly explains the basic determinant of (a) the transactions demand and (b) the asset demand for money and also explains graphical representation of the two demands. .The higher the interest rate, the smaller the amount of money demanded as an asset. On a graph measuring the interest rate vertically and the amount of money demanded horizontally, the two demands for the money curves can be summed horizontally to

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