L16 - ECO 100Y ECO 100Y ECO 100Y ECO 100Y Introduction to...

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Unformatted text preview: ECO 100Y ECO 100Y ECO 100Y ECO 100Y Introduction to Introduction to Introduction to Introduction to Economic Economic Economics Economics Lecture 16: Lecture 16: The Demand for Money and The Demand for Money and The Demand for Money and The Demand for Money and Equilibrium in the Money Market Equilibrium in the Money Market © Gustavo Indart Slide 1 Assets Market Assets Market Assets Market Assets Market ! Assumption: only 2 assets, money and bonds ! Money doesn’t pay any return ! Bonds pay a return " The yield of the bond is the rate of interest ( i ) in the " The yield of the bond is the rate of interest ( i ) in the economy ! The opportunity cost of holding money is the interest forgone ( i ) by not holding bonds instead © Gustavo Indart Slide 2 The Demand for Money The Demand for Money ! Transaction motive " To make regular payment " To make regular payments " Money as a medium of exchange ! Precautionary motive " To make unexpected payments " Money as a medium of exchange ! Speculative motive ! Speculative motive " Expectations about returns on other assets (bonds) " M t r f l © Gustavo Indart Slide 3 " Money as a store of value The Determinants of Money The Determinants of Money Demand Demand ! The demand for money is a function of the rate of interest , real GDP , and the...
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L16 - ECO 100Y ECO 100Y ECO 100Y ECO 100Y Introduction to...

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