Question

The money market comprises the demand for money and the money supply. The equilibrium in the money market is such a state of balance when the demand for money from households and businesses is satisfied by the quantity of the money supplied. The equilibrium in the money market is reached by changing bond prices. People can hold their wealth in various forms — money, bonds, equities, and property. For simplicity we assume that there are only two assets: money, the medium of exchange that pays no interest, and bonds, which we use to stand for all other interest-bearing assets that are not directly a means of payment. As people earn income, they ad to their wealth. As they spend, they de-plete their wealth. How should people divide their wealth at any instant be-tween money and bonds to gain the best profits possible and not to incur losses? There is an obvious cost of holding money. The opportunity cost of holding money is the interest one would have gained if he (she) had held bonds. It naturally follows that people will hold money rather than bonds only if there is a benefit to offset this cost, only if holding money is more profitable than holding bonds. It may happen only when interest rates on bonds are too low to make it profitable to hold bonds. Suppose the money market is in equilibrium when the interest rate on interest-bearing assets (e.g. Treasury bills and other securities) is 6% and the amount of money demanded is $200 mm. Now suppose the interest rate goes down, say, to 4%. In this case interest-bearing assets are no longer profitable as they can't earn a sufficient return. Hence the demand for money will rise and will lead to a temporary lack of money in the money market. If they lack money, households and businesses are likely to sell bonds they possess for cash. That will cause an increase in the bond supply, which lowers bond prices and rises interest rates on interest-bearing assets. With a higher interest rate the amount of money people are willing to have in hand will decrease again. Con-sequently, the money supply will adjust to a current demand to reflect a new higher interest rate. Conversely, the increase in the money supply creates its temporary surplus, which results in the demand for bonds and bond prices going up. The interest rate falls thus restoring balance in the money market, but at a new lower interest rate. Перевести

Answer 1

Боже мооой..... я бы перевела но что-то много

Answer 2

The money market is a concept that refers to the interaction between the demand for money and the money supply. In this market, equilibrium is achieved when the demand for money from households and businesses is satisfied by the quantity of money supplied. This equilibrium is maintained by changing bond prices.

In the money market, individuals and businesses have various options for holding their wealth, including money, bonds, equities, and property. For the sake of simplicity, let's assume there are only two assets: money, which is the medium of exchange and does not pay interest, and bonds, which represent all other interest-bearing assets that are not directly used as a means of payment.

As individuals earn income, they add to their wealth, and as they spend, they deplete their wealth. The question then arises: how should people allocate their wealth between money and bonds at any given moment to maximize profits and avoid losses?

One of the costs associated with holding money is the opportunity cost. This refers to the interest one would have earned if they had held bonds instead of money. People will choose to hold money rather than bonds only if there is a benefit that offsets this cost, meaning that holding money is more profitable than holding bonds. This situation may arise when interest rates on bonds are too low to make holding bonds profitable.

Let's consider an example: suppose the money market is in equilibrium with an interest rate of 6% on interest-bearing assets (such as Treasury bills and other securities) and a demand for money of $200 million. Now, let's imagine that the interest rate decreases to 4%. In this case, interest-bearing assets are no longer profitable, as they cannot generate a sufficient return. Consequently, the demand for money will increase, leading to a temporary shortage of money in the money market.

To compensate for the lack of money, households and businesses are likely to sell the bonds they possess in exchange for cash. This increases the supply of bonds, which, in turn, lowers bond prices and raises interest rates on interest-bearing assets. With higher interest rates, individuals will be less willing to hold money, and the amount of money people want to have in their possession will decrease. As a result, the money supply will adjust to meet the current demand and reflect the new higher interest rate.

Conversely, the increase in the money supply creates a temporary surplus, leading to an increase in the demand for bonds and a rise in bond prices. This decrease in interest rates restores balance in the money market, but at a new lower interest rate.

In summary, the equilibrium in the money market is achieved through the interaction of bond prices, interest rates, money supply, and demand for money. Changes in interest rates can lead to shifts in the demand and supply of money and bonds, which in turn affect bond prices and interest rates.