money market

• Market where the fed and the uses of money interact, thus determining the nominal interest rate.
• Money demand comes from the households, firms, the government, and the foreign sector.
• The money supply(ms) is determined only by the federal reserve bank. 

Two types of money demand(md):
1. Transaction demand- demand for money as a medium of exchange.
2. Asset demand- demand of money as a store for value. It is dependent upon the interest rate.

• Money demand is downward slopping because of high interest rate. People are less inclined to hold money and more inclined to hold stocks and bonds.

• Money supply determined by the feds because the fed has a monopoly over money supply.
• Because of this, this is why money supply has a vertical curve. 
• Also vertical because its dependent of the interest rate.

Expansionary monetary policy:

• ms will shift to the right
• nominal interest rate will decrease
• discount rate and reserve ratio will both decrease
• buy bonds(more money)
• ms will increase

Contractionary monetary policy:

• ms will shift to the left
• interest rate will increase
• discount rate and reserve ratio will both increase
• sell bonds(less money)
• ms will decrease

• Loanable funds: the moment where buyers and savers meet to exchange funds at the real interest rate. 
• both the demand and the supply for loanable funds come from the households, firms, the government, and the foreign sector.