ECON1102 Lecture Notes - Lecture 6: Money Market Account, Monetary Base, Real Interest Rate
Document Summary
Money and inflation: since the 1960s, the australian (and the us) inflation rate has been positive. Inflation rose in the 1970s for the following reasons: Opec coordinated increases in oil prices that spurred inflation. In many countries, their central banks made mistakes in running a monetary policy that grew the money supply too rapidly. Policymakers pursued such a policy because of the productivity slowdown. Money: money is paper currency, money takes on value because we expect others will value it, different countries measure money in slightly different ways. The monetary base includes currency and accounts, called reserves, which private (cid:271)a(cid:374)ks hold (cid:449)ith the e(cid:272)o(cid:374)o(cid:373)y"s (cid:272)e(cid:374)tral (cid:271)a(cid:374)k, (cid:449)hi(cid:272)h pay (cid:374)o i(cid:374)terest. Reserves ensure that banks have sufficient cash on hand in case there is a run on the bank asking for currency withdrawals. M1 adds demand deposits to the money base. Increases in the money supply and decreases in real gdpp cause prices to rise.
