JAMB Economics 2019 Paper

Concept:Money market equilibrium occurs when the quantity of money people want to hold equals the quantity of money available in the economy.Explanation:The demand for money is represented by $L$.The supply of money is represented by $\mu$.Equilibrium is reached when $L = \mu$.In other words, money demand equals money supply.Money demand includes both the transaction and precautionary motive, $L_T(Y)$, and the speculative motive, $L_S(r)$.Thus, equilibrium can be written as $\mu = L_T(Y) + L_S(r)$.At this point, the interest rate adjusts so that people are satisfied holding the existing money supply.If demand and supply are not equal, the interest rate changes until balance is restored.Answer:A. when the demand and supply of money are equal