According to John Maynard Keynes, a. the demand for money in a country is determined entirely by that nation's central bank. b. the supply of money in a country is determined by the overall wealth of the citizens of that country. c. the interest rate adjusts to balance the supply of, and demand for, goods and services. d. the interest rate adjusts to balance the supply of, and demand for, money.

Question

Alessandro Ross

Social Studies

24 May, 06:06

According to John Maynard Keynes, a. the demand for money in a country is determined entirely by that nation's central bank. b. the supply of money in a country is determined by the overall wealth of the citizens of that country. c. the interest rate adjusts to balance the supply of, and demand for, goods and services. d. the interest rate adjusts to balance the supply of, and demand for, money.

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Answers (1)

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Richard Shaffer · Answer 1

d. the interest rate adjusts to balance the supply of, and demand for, money.

Explanation:

In Keynes's view, the interest rate is the premium that economic agents get for delaying the consumption that satisfies them. This is why people decide to save rather than consume. Thus, the consumer decides between present consumption or future consumption, depending on the attractiveness of the interest rate practiced in the market. In other words, the interest rate acts as the beacon between supply and demand for money. When the interest rate is attractive, savers forgo current consumption and save for extra income.