petergarylee

In a simple way, you can draw the MD and MS graph. Where nominal interest rate= real interest rate + inflation rate.  If there is inflation, nominal interest rate will decrease . MS is always constant(only government and bank can adjust it), thus a decrease in interest rate causes MD to decrease to reach its equilibrium level. The theory of transection and asset demand of money takes more time to assume and explain . Do you want me to do that? ( it will be in a lower priority cuz it takes more time, sorry)

petergarylee

plz have a look on reply no.27

petergarylee

Sorry, these kind of theoretical question(inefficient market) cant be answered in here because if I miss some points, it will cause misleading to you, plz refer to your text book. But shortage is one form of inefficient market because it is not in the equilibrium level of production, under shortage, MB> equilibrium P >MC, , which is in inefficient level of production.