Governments have legal tender {money}, for paying taxes and all debts public and private.
demand
People need money for money transactions, as precaution against future, and as substitute for security speculation. Businesses need money to purchase materials and invest in capital.
interest rate
The money market sets interest rate, based on savings supply and investment demand. Demand from people and businesses raises money interest rate from lenders. Higher saving by people and businesses lowers interest rate.
savings
Savings grow if people and businesses choose future consumption over current consumption. If people and businesses choose future production over current production, they make investments. Savings are available for investment.
GNP
Interest rate varies directly with GNP, because businesses want to invest more if GNP is high.
money supply
Interest rate varies inversely with money supply, because, if more money is available, money value goes down, by marginal-utility principle.
Social Sciences>Economics>Microeconomics>Money
6-Economics-Microeconomics-Money
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Date Modified: 2022.0224