The Behavior of Interest Rates - Changes in Equilibrium Interest Rates - Liquidity Preference framework

5 important questions on The Behavior of Interest Rates - Changes in Equilibrium Interest Rates - Liquidity Preference framework

What is the liquidity preference framework?

An alternative model for determining the equilibrium interest rate in term of supply and demand for money rather than in terms of the demand for bonds.

Which 2 categories of assets are usually used to store wealth?

Money and bonds

Give the formula of the wealth in the economy

= the total quantity of bonds + money in the economy
= quantity of bonds supplied + quantity of money supplied
= BS+MS
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What is the total amount of wealth?

Quantity of bonds demanded + quantity of money demanded= BD+MD

When is there an equilibrium in the money market/ bond market?

BS+MS = BD+MD

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