Ch11 SH - Money Demand and the Equilibrium Interest Rate...

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Interest Rates and Bond Prices The Demand for Money The Transaction Motive The Speculation Motive The Total Demand for Money The Effects of Income and the Price Level on the Demand for Money The Equilibrium Interest Rate Supply and Demand in the Money Market Changing the Money Supply to Affect the Interest Rate Increases in Y and Shifts in the Money Demand Curve Looking Ahead: The Federal Reserve and Monetary Policy Appendix A: The Various Interest Rates in the U.S. Economy Appendix B: The Demand for Money: A Numerical Example Money Demand and the Equilibrium Interest Rate
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Interest Rates and Bond Prices Interest The fee that borrowers pay to lenders for the use of their funds. Bonds
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The Demand for Money The Transaction Motive The main reason that people hold money—to buy things. When we speak of the demand for money, we are concerned with how much of your financial assets you want to hold in the form of money , which does not earn interest, versus how much you want to hold in interest-bearing securities, such as bonds.
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The Demand for Money: The Transaction Motive Income arrives only once a month, but spending takes place continuously. The Non-synchronization of Income and Spending
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Non-synchronization of income and spending The mismatch between the timing of money inflow to the household and the timing of money outflow for household expenses. The Demand for Money: The Transaction Motive
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6 of 23 Jim could decide to deposit his entire paycheck ($1,200) into his checking account at the start of the month and run his balance down to zero by the end of the month. In this case, his average balance would be $600.  FIGURE 11.2 Jim’s Monthly Checking Account Balances: Strategy 1
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7 of 23 Jim could decide to deposit his entire paycheck ($1,200) into his checking account at the start of the month and run his balance down to zero by the end of the month. In this case, his average balance would be $600. Jim’s Monthly Checking Account Balances: Strategy 1
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his income. At midmonth, Jim would sell the bond and deposit the $600 into his checking account to pay the second half of the month s bills. Following this strategy, Jim s average money holdings would be $300. Jim’s Monthly Checking Account Balances:
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Ch11 SH - Money Demand and the Equilibrium Interest Rate...

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