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How is the equilibrium of money supply and demand achieved, and how is the interest rate determined?

The realization of monetary equilibrium under market economy conditions depends on three conditions, namely a sound interest rate mechanism, a developed financial market and an effective central bank regulatory mechanism.

Under the conditions of a complete market economy, the most important mechanism for realizing monetary equilibrium is the interest rate mechanism. In addition to the interest rate mechanism, there are:

1. The central bank’s regulatory measures;

2. The state’s fiscal revenue and expenditure;

3. The production sector Whether the structure is reasonable;

4. Whether the balance of international payments is basically balanced and other four factors.

Under market economy conditions, interest rates are not only an important signal of whether money supply and demand are balanced, but also have an obvious regulatory function on money supply and demand. Therefore, monetary equilibrium can be achieved through the interest rate mechanism.

Extended information:

Monetary equilibrium is a state of money supply and demand, which makes the money supply and money demand in society generally consistent, rather than the difference in value between money supply and money demand. are completely equal.

Monetary equilibrium is a dynamic process. Money supply and demand may be inconsistent in the short term, but they are generally consistent in the long term. Monetary equilibrium is not that the money supply is consistent with the actual money demand, but that the money supply is basically consistent with the moderate money demand.

The signs of monetary equilibrium are reflected in the following aspects:

1. Price stability in the commodity market.

2. The supply and demand of commodities are balanced. There is neither a backlog caused by an oversupply of goods nor a shortage caused by an insufficient supply of goods.

3. The supply and demand for funds in the financial market are balanced and a balanced interest rate is formed. The society's limited resources are rationally allocated, and the purchasing power of money is neither excessive nor insufficient.

Baidu Encyclopedia - Monetary Equilibrium