ACP Econ Notes Unit 1 Part 3

Money supply the fed should sell government

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money supply, the FED should SELL government securities The money multiplier = 1/reserve requirement (ratio) Unit 4 Notes Interest Rates and Inflation Real Interest Rates : the % increase in purchasing power that a borrower pays (adjusted for inflation) • Real = nominal interest rate - expected inflation • Nominal Interest Rates : the % increase in money that the borrower pays (not adjusted for inflation) Loanable Funds Market
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• An interest rate of 50% good or bad (Bad borrowers, good for lenders) • Interest rates are high are good for lenders • Interest rates are low good for borrowers • The loanable funds market is the private sector supply and demand of loans (banks ex: Wells Fargo, Bank of America, Sun Trust) • This market shows the effect of REAL INTEREST RATES • DEMAND : inverse relationship between real interest rate and quantity loans demanded • SUPPLY : direct relationship between real interest rate and quantity loans supplied • • THIS IS NOT THE SAME AS THE MONEY MARKET (supply is not vertical) Shifters of Demand Shifters of Supply
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