Money Demand, The Equilibrium Interest Rate, and Monetary Policy

Money Demand, The Equilibrium Interest Rate, and Monetary Policy

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Econ 4.3 Monday, March 22, 1999 Announcements: Chapter 10 and Chapter 11 homeworks are due on Wednesday. Dr. Fox was out today. Lecture notes: The Supply of Money Vertical line because it is completely determined (set) by the Fed Fed changes the M S (shifts the curve) by changing the required reserve ratio, or by engaging in open market operations o Increase (decrease) in rr --> decrease (increase) in M S o Fed buys (sells) bonds --> increase (decrease) in M S Chapter 12: Money Demand, The Equilibrium Interest Rate, and Monetary Policy Chapter 12 combines money supply with demand for money The demand for money does not mean how much money you would like to have, but rather how much of your financial assets you would like to hold as cash (ie. non-interest bearing securities) Total Demand For Money Transactions Motive: The transactions motive refers to the main reason people hold money to buy things. Reasons why demand for money is downward sloping. Speculative Motive:
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This note was uploaded on 02/21/2008 for the course ECON 4.3 taught by Professor Fox during the Spring '99 term at Pennsylvania State University, University Park.

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Money Demand, The Equilibrium Interest Rate, and Monetary Policy

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