Lecture 10 - Agenda Asset Market Equilibrium The Asset...

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