MGEA06H3 Lecture Notes - Lecture 19: Monetary Transmission Mechanism, Nominal Interest Rate, Overnight Rate

• School: UTSC
• Department: Economics for Management Studies
• Course: MGEA06H3
• Professor: Iris Au

Document Summary

Introduce the money demand curve and factors affecting the money demand. Introduce the theory of liquidity preference and using it to determine the interest rate. Incorporate monetary policy in the income-expenditure model and the as- The demand for money (md) comes from households and firm who want to hold money to facilitate their daily transactions and/or to store their wealth. Let"s examine factors that affect the demand for money. We can store our wealth in different types of assets: Monetary assets such as cash and bank deposits. Interest-bearing, non-monetary assets such as bonds, stocks and etc. The choice between holding monetary assets and non-monetary assets involves a trade-off between convenience and earning interest. Monetary assets offer convenience (can be converted into money easily) but they offer little to no interest/return. Non-monetary assets offer returns to holders but they does not provide convenience (it takes time to convert these assets into money).