Demand for Money, Investment, GDP and Monetary Policy

Demand for Money, Investment, GDP and Monetary Policy - •...

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Econ 4.3 Wednesday, March 24, 1999 Announcements: Homeworks 6 and 7 are due on Monday. Lecture notes: Monetary Policy The Federal Reserve Board of Governors o Alan Greenspan, Chairman o Alice Rivlin, Vice Chair o Seven members -- each serving a 14 year term Demand for Money, Investment, GDP and Monetary Policy Demand for money and the interest rate o transactions demand o precautionary demand o asset demand Money Market Investment Demand Money, Interest and determination of GDP Monetary Policy Tools Monetary Policy, money, interest, injections, GDP determination
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Unformatted text preview: • Keynesian "liquidity" trap • Keynesian Monetary transmission linkages • See Figure 13.3 on page 277 in the textbook • Md = Demand for Money • Ms = Supply for Money • To increase interest rate -- move money supply to left • Investment Demand and Injections • % Return on Investment • Federal Funds Rate -- what one bank pays another bank to borrow reserves • Federal Funds Market • Tight Money -- decrease money supply, raise interest rate, reduce investment, reduce GDP...
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