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Money demand. Using the model in Chapter 12. Explain what determines the demand for currency or...

Money demand. Using the model in Chapter 12. Explain what determines the demand for currency or credit card services. What happens when the cost of credit card services increases? When the interest rate decreases? When income increases? When prices increase? When the FED buys bonds? Illustrate the effect of these changes in the money market using a graph and explain the mechanisms.

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Answer #1

Demand for money/credit card depends on-Price level,change in income,change in interest rate,change in inflation rate,and change in wealth.

When the cost of credit card increases,the demand for money decreases because every transaction becomes more expensive.

When interest rate decreases,income increases which increases AD.So, demand for money increases.

When income increases demand increases and demand for money increases.

Fed buys bonds in exchange of money.

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