Work through the list without notes. If you cannot do a statement, follow its link, then come back. Guide = study guide; Practice = practice questions.
Understanding
- I can define the money market, money demand and money supply, and say why the nominal interest rate is the “price” of holding money. (Guide: “What is the money market?”; Practice Q1)
- I can explain why the quantity of money demanded falls when the nominal interest rate rises. (Guide: “Money demand: why the curve slopes down”; Practice Q1)
- I can explain why the money supply curve is vertical. (Guide: “Money supply: why the curve is vertical”; Practice Q6(e))
- I can name the factors that shift money demand and money supply, and tell a shift from a movement along a curve. (Guide: “What shifts the curves”; Practice Q3, Q4)
Skills
- I can draw a money market graph with the nominal interest rate and quantity of money on the axes, a vertical MS and a downward-sloping MD. (Guide: Figure 1; Practice Q6(a))
- I can find the equilibrium nominal interest rate from a table or an equation. (Guide: Worked example 1; Practice Q5(a), Q7(a))
- I can calculate the size of a surplus or shortage of money at a given interest rate. (Guide: Worked example 1; Practice Q5(b))
- I can show a shift in MD or MS on a graph and label the new equilibrium rate. (Guide: Figure 2; Practice Q6(b))
Reasoning
- I can explain how buying or selling bonds moves the interest rate back to equilibrium. (Guide: Worked example 1; Practice Q2, Q5(c))
- I can explain how a change in the price level or real GDP changes the equilibrium nominal interest rate, and what happens to bond prices. (Guide: Worked example 2; Practice Q3, Q6(c)–(d))
- I can work out the change in money supply needed to hold the interest rate steady, and explain why two opposite shifts can give an indeterminate result. (Guide: Worked example 2; Practice Q7)
All ticked? Move on to Topic 4.6, the Monetary Policy study guide, or return to the course roadmap.