How does demand for money being intrest inelastic makes the money-intrest link weak? (module 18 pg 24)
The money-interest link is weak if demand for money is interest ELASTIC (not inelastic). Try drawing a money market diagram with an elastic money demand curve and look at what happens to the market interest rate if you shift the money supply curve.
Yes sorry intrest elastic..it means little fall in intrest rates will increase the demand for money rapidly.. I tried drawing the supply curve..increses in supply will only lead to fall in intrests rates to a little extent. Thus due to intrest elastic demand curve, there will be only minor changes in intrest rates and thus only little changes in the investments.is it this what the book is trying to say? But then again wont it depend upon the income elasticity of supply?
Yes, that's what it's trying to say. And it won't depend on the elasticity of supply. Try drawing the diagram with supply curves of different gradients to check!
Thanksss...got my mistake! Could you please reply to my other doubts as well because i want to clear all the concepts before begining with paper solving!
