Answered: How can market forces of supply and…

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter29: Interest, Rent, And Profit

Section: Chapter Questions

Problem 6QP

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How can market forces of supply and demand affect interest rates and the economy?

Expert Solution

Step 1

The demand and supply affect interest rates in the money market. The money market is the market that describes the demand and supply for money in a country. The demand shows the quantity of money demanded in the economy whereas supply shows the quantity of money supplied in the economy. A rate of interest is the cost of borrowing money and the contrary is also the compensation for the risk of lending money. The level of interest rates always keeps on changing. One of the factors that affect interest rates is supply and demand in the economy.

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