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lec20slides - Money 1 Money Supply and Demand determines...

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1 Money! 3 Money Supply and Demand determines Interest Rate Monetary Policy: Government manipulating supply of money to affect interest rate.
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7 What is money? Choice: Hold funds yourself so you can use them whenever you want. “Liquid assests” = Money Give funds to someone else for them to use for a period of time. “Non-liquid assets” Interest rate: Amount that person receives for allowing another person to use his/her assets for a period of time. 11 Today distinction is less clear: Interest is paid on fully liquid funds. There is a continuum of liquidity. Interest rate is higher for less liquid funds. Consider the “interest rate” to be the premium received for lower liquidity.
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13 Why do people hold money? Transactions Speculation 14 Demand Curve for Money Quantity of money demanded depends on interest rate. r M M d
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Shifts in Demand Curve for Money Y rises M d rises. r M M d 1 M d 1 16 Prices rises M d rises. r
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This note was uploaded on 11/28/2010 for the course ECON 1 taught by Professor Martholney during the Fall '08 term at Berkeley.

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lec20slides - Money 1 Money Supply and Demand determines...

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