An equilibrium in the money market at the interest rate is when the quantity of money demanded and the quantity of money supplied are equal. A shift in money supply or money demand changes the level of interest rate in the money market. Money demand is a function of interest rate while money supply is exogenous
When there is no money in the market. When money supply in the market decreases ,this shifts the money supply left, lenders are forced to increase interest rates. In such a situation, lenders respond to the need of controlling the money demand which is shifted to the right and enhancing profitability.
