ECON 203 Lecture Notes - Lecture 16: Opportunity Cost, Nominal Interest Rate, Real Interest Rate
30 Mar 2017
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Document Summary
Monetary policy and the transmission mechanism (chapters 9-10) Stability in terms of the volume and value of transactions, transfers (predictability, no shocks, no fluctuations) A change in money supply a change in spending (simple transaction mechanism p. 226) The central bank establishes monetary policy based on the targets and goals regarding y(gdp), cpi, inflation rates. Contractionary monetary policy y decrease: changing the overnight interest rate, changing the money supply by a certain amount (qualitative easing, ms increase, changing/setting the exchange rate, changing the reserve ratio, setting the rules in the banking system. By increasing the number of transactions and transfers in economy, money is "created"" ex: a student buys a computer. Bank 1: the student"s bank"s reserves decrease by rr * 2000$ and loans decrease by (1-rr) * 2000$ Bank 2 (sellers bank): deposits increase by 2000$ and loans increase by (1-rr)*2000$.
