AP®︎ Macroeconomics: Topic 4.5 Flashcards

The market where money demand and money supply determine the nominal interest rate.

The quantity of money people want to hold at different nominal interest rates.

The total quantity of money available, set by the central bank and independent of interest rates.

The stated interest rate, equal to the real interest rate plus expected inflation.

As the nominal interest rate rises, the quantity of money demanded falls, and vice versa.

The interest income forgone by holding wealth as money instead of interest-bearing assets.

A money supply graph showing the quantity of money is unchanged at all nominal interest rates.

Nominal interest rate is on the vertical axis and quantity of money on the horizontal axis.

The market clears at the nominal interest rate where money demanded equals money supplied.

Money shortages raise nominal interest rates, while surpluses lower them toward equilibrium.

Price level, real GDP, and transaction costs shift the quantity of money people want to hold.

Central bank actions shift money supply right to lower rates or left to raise rates.