MacroII

MacroII - Macroeconomics Chapter4 Chapter5 Chapter6 Dr....

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Macroeconomics Chapter4 Chapter5 Chapter6 Dr. Safarzadeh Chapter 4: Financial Markets The Main Question of the Chapter: What is interest rate and how is the interest rate determined in the economy. The Three Main Markets of the Financial Markets : Money Market, Bond Market, and Stock Market. If two of the markets are in equilibrium, the third market has to be in equilibrium. Chapter 4: Financial Markets Some Definitions: Flow variable : Expressed in unit of time. Income or revenue from operation of capital is flow variable. Stock Variable : A value at a given time (wealth). Investment: Purchase of Capital Goods Financial Investment: Purchase of Stocks & Bonds Liquidity: Speed with which an asset can be transformed into money. Chapter 4: Financial Markets What is Interest Rate? Price of Money Types of Interest Rate: Many Different Types. They Generally Move Together Interest Rate as a Fundamental Economic Variable : Investment Decisions What Determines Interest Rate? Money market: Demand and Supply of Money Spending Decisions on Big Items A Tool of Monetary Policy Chapter 4: Financial Markets What is Money: Currency and coins used in everyday transactions. Functions of Money: Medium of Exchange, Unit of Account, Store of Value. Type of Demand for Money: Transaction demand, Precautionary demand, and Speculative Demand. Definition of Money: Differ based on Liquidity. M1 = Currency + Demand Deposits (Checkable Accounts) M2 = M1 + Saving Accounts (Time Deposits) + Money Market Accounts Chapter 4: Financial Markets What Decides Demand for Money: Level of Transactions Which Depends on Income and Price Level M d = $YL(i) M d : Demand For Money $Y: Nominal Income L(i): A Function of Interest Rate Holding of Cash or Interest Earning Assets (Bonds or Savings) Chapter 4: Financial Markets What Does M d = $YL(i) Represents? Md Depends Negatively on Interest Rate. Md Increases in Proportion to Nominal Income. Chapter 4: Financial Markets Demand For Money : Increase in Income Chapter 4: Financial Markets Velocity of Money: Speed With Which Money changes Hands. V = $Y/M Why? Innovations in Financial Markets (Credit Cards and ATM) Velocity of Money has Doubled Over the Past 40 Years. 40% of US total money stock is held by Foreigners. Chapter 4: Financial Markets Money Supply: Decided by the Fed Two Sources of Money in the Economy: High Powered Money : Supplied by the FED...
View Full Document

Page1 / 56

MacroII - Macroeconomics Chapter4 Chapter5 Chapter6 Dr....

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online