Interest Rate and supply of money

CFA Level I Economics
#1
  1. An expansion in the money supply would most likely:
    A. lead to a decline in nominal interest rates.
    B. lead to an increase in nominal interest rates.
    C. reduce the equilibrium amount of money that economic agents would wish to hold.

A is correct. Increasing the supply of money, all other things being equal, will reduce its “price,” that is, the interest rate on money balances.

I don’t understand this phrase reduce its “price,” that is, the interest rate on money balances.

#2

“Price” is probably a poor choice of words.

“Rent” is better.

#3

It’s like the supply/demand graph for a good or service: if supply expands, the supply curve shifts right and the equilibrium price drops. For money, like s2000magician points out, the “price” is the interest rate: with more money floating around, it is easier to acquire, so nominal interest rates drop.

#4

I thought for money it’s interest

#5

And what is interest?

Hint: it’s rent.

#6

“Economic rent is an amount of money earned that exceeds that which is economically or socially necessary”.

Is that what u meant? Above the needs?

#7

No.

Rent is what you pay to use an asset owned by someone else.

When you use money owned by someone else, you pay interest: rent.

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