Explain how each of the following developments would affect the supply of money, the demand for money, and the interest rate. For each case, show what happens in a closed economy and in a small open economy. Illustrate your answers with diagrams.
The Bank of Canada's bond traders buy bonds in open-market operations.
- An increase in credit cared availability reduces the cash people hold.
- Households decide to hold more money to use for holiday shopping.
- A wave of optimism boots business investment and expands aggregate demand.
An increase in oil prices shifts the short-run aggregate supply curve to the left.