MONEYCLASS - Money, Banking and the Financial System...

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1 Money, Banking and the Financial System 1 ± Lincoln/Hist of Money/Banks? In the News? 2 Course Issues ² Clicker Registration – if not, must see me ² Gradebook/ emails ² Online Midterm ± One Hour Window – starting Tuesday 3/8 6pm thru Thursday 3/10 6pm. ± Covers weeks 1-7 ± Study big qs, hw, slides 3 ² Investment Game 2 ² How to study/learn/grow wealthy ² How to get help ² ODE-bloomberg, advanced excel, roundtable ² See me?
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2 Where are we? The Keynesian Model ± P=overal level of prices, y=real GDP=output=income C=consumption I=investment in plant and equipment G=government spending X=exports M=imports Y-T=disposable income r=interest rate (i if I make a mistake) Ms=money supply ± Aggregate Demand & Supply (D&S) determine y (y=real output=real gdp; real means it measures physical production=output=income) and P (aggregate price level and inflation) ± Shifts in aggregate demand (and sometimes aggregate supply) cause business cycles: recessions/depressions ± Aggregate D = C+I+G+X-M ² increases in any of these shift aggregate D curve by a multiple ± Later - Short-run aggregate S curve reflects wages, costs, technology , etc. An decrease in aggregate demand in the shor run will result in decreased 4 An decrease in aggregate demand in the short-run will result in decreased production and output. – a movement down along the aggregate supply curve ² changes in wages, costs of production, technology shift SR aggregate supply curve ± Fiscal policy (changes in federal government spending and/or taxing for stabilization purposes - G,T) shifts aggregate demand and thus y,P i.e. G-> D p,y and T->Y-T->C->D etc ± Monetary policy : Money Supply (controlled by Fed) increases -> interest rates fall -> Investment (in plant and equipment) increases -> aggregate Demand increases (by a multiple) -> output and prices increase i.e. Ms up->r down->I up->agg D up->P,y up ± Wealth effect W up->C up->D up->p,y up ± Paradox of thrift : S up -> C down ->D and p,y down in SR (LR Sup->I up) Advantage of a Money Economy? ± Increases Economic Efficiency ² Lowers Transactions And Information Costs ± Versus Barter Double Coincidence Of Wants ± 5 Goods, 9 Barter Prices ² Ab Ac Ad Ae Bc Bd Be Cd Ce 5 Money Prices $A $B Etc 5 ± ² Allows Specialization And Division Of Labor ± Increasing Production And Exchange ² Allows Development of Financial System ±
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This note was uploaded on 10/25/2011 for the course ECONOMICS 01:220:103 taught by Professor Sheflin during the Spring '08 term at Rutgers.

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MONEYCLASS - Money, Banking and the Financial System...

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