ECON 209 Lecture Notes - Lecture 28: Overnight Rate, Money Supply, Aggregate Demand
30 Aug 2018
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**ignore the in canada part, theories can apply elsewhere. Money supply vs interest rate: note: central bank cannot directly set money supply, ms = currency in circulation + total bank deposits. Commercial banks play a huge role in influencing deposits: central bank cannot target both ms and i% for any given md curve if ms chosen: monetary eq will determine i% Announce something, but may not actually have to go through it. Open market operations the purchase + sale of gov"t securities on the open market by the central bank: change in ms to keep i% on target, ms endogenous. Econ 209: why, high inflation = costly reduces real purchasing power of money. Undermines ability of the price system to provide accurate signals of changes in relative scarcity. Uncertainty generated is damaging: monetary policy is the cause of sustained inflation.
