Determine in detail about the money market, Business Law and Ethics

Determine in detail about the money market

Prior to the change in monetary policy both countries are assumed to be in equilibrium at point A in both of these diagrams. Only at this point are the goods market and money market simultaneously in equilibrium. In country A the rate of interest (r) and national income (Y) are initially R0 and Y0 respectively. Similarly in country B they initially equal R0 and Y0. We now suppose that country A expands its domestic money supply. This is represented by the LM curve for that economy shifting to the right from LM0 to LM1.

 

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