Lecture_Notes_-_Macro,_Chapter_14

Lecture_Notes_-_Macro,_Chapter_14 - Chapter 14 Interest...

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Unformatted text preview: Chapter 14 Interest Rates and Monetary Policy Interest : the price paid for the use of money Demand for Money 1. Transactions Demand: using money as a medium of exchange (to make purchases); increase nominal GDP, increase transactions demand (shifts money demand curve) [Graph, pg. 260] 2. Asset Demand: holding money as a store of value; increase interest rate, reduce the quantity demanded as an asset (dont want to hold money; the opportunity cost of holding money is the interest it could be earning)[Graph, pg. 260] 3. Total Demand = Transactions Demand + Asset Demand Demand for Money Curve is downward sloping, showing the amount of money the public wants to hold at each interest rate 1 Graph: pg. 260 Money Supply: verticalassume a particular stock of money (M1) Graph: pg. 260 Intersection of D & S of money is Equilibriumoccurs at the price paid for money (i); an increase in the Supply of Money will decrease the interest rate, a decrease in the Supply of Money will increase the interest rate. Interest Rates and Bond Prices are inversely related. Read pg. 261. 2 Balance Sheet of the Fed Assets: 1. Securities: US Government securities (Treasury bills, notes, and bonds) purchased by the Fed banks. These are bought and sold from/to commercial banks to influence ER 2. Loans to Commercial Banks: claims against assets of commercial banks....
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This note was uploaded on 09/02/2008 for the course ECO 1002 taught by Professor Rissell during the Spring '08 term at Villanova.

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Lecture_Notes_-_Macro,_Chapter_14 - Chapter 14 Interest...

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