Money Market Ms Interest rate X Loanable Funds Market Supply Interest rate Md Demand Q$$ QLF QLF The graphs above represent the Money Market and the Loanable Funds Market. The Money Market graph is used to show how short-term interest rates are determined. The Loanable Funds Market graph is used to show how long-term interest rates are determined. a. In the Money Market, who/what determines the amount of money in circulation (Ms)? (1 point) What VERY strong assumption are we making about Ms (money supply) in this graph? (1 point) b. Explain carefully what happens to short-term interest rates if more money is put into circulation. (2 points) c. In the Loanable Funds Market, which curve represents the 'savers'? Which curve represents the 'borrowers'? (1 point)
