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110-1The Asset Market, Money, and Prices,Part 210-2Agenda•Asset Market Equilibrium•Money Growth and Inflation10-3Asset Market Equilibrium•Asset market equilibrium:¾Assume that all assets can be grouped into two categories, money and non-monetary assets.•Money (M) includes currency and checking accounts–Pays interest rate im(which we will assume is zero).–Supply is fixed at M.•Non-monetary assets (NM) include stocks, bonds, etc.–Pays interest rate i= r+ πe–Supply is fixed at NM.10-4Asset Market Equilibrium•Asset market equilibrium:¾The nominal demand for assets:• Let md+ nmdbe an individual’s nominal demand for assets, and• Let Md+ NMdis the aggregate nominal demand for assets.–Which is also aggregate nominal wealth.
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