Monetary Theory Study Guide

Monetary Theory Study Guide - Monetary Theory Study Guide...

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Monetary Theory Study Guide Quiz 3 Describe the K’s and what are they used to define. 1) k – ratio of stock of money to stock of wealth. ( wealth => money) 2) k(r) – ratio of stock of money to flow of income as a function of real return ( r => cash) 3) Keynes k – active money nominal income (income => cash) 4) Friedman k – function of all different factors… P (+), y(p) (+), w(-), im (-), ib (-), ie (-), rate of inflation (-), u everything else. These ks are the inverse of V in the quantity theory of money. What are the differences between regressive, adaptive, and ration expectations? 1) Regressive – belief that the current interest rate will regress back to the individual agent’s expected rate. 2) Rational – agent’s with perfect foresight won’t make systematic mistakes 3) Adaptive – expectations shaped by passed events. What are Keynes’ three reasons for holding money? 1) Precautionary – It is better to have to be caught having to much money then to little. So as your income you are going to want to hold more money. 2) Transactions – Dependent on income and wealth, but the more transactions you are going to need to complete the more money you want to hold also with income or wealth. Precautionary and Transactions demand for money, are related to current consumption, and are therefore related to current income. 3) Speculative – dependent on interest rates, the opportunity cost of holding money. If interest rate want to hold money.
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This note was uploaded on 05/20/2011 for the course ECON 430 taught by Professor Neveu during the Spring '11 term at James Madison University.

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Monetary Theory Study Guide - Monetary Theory Study Guide...

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