ECON 1BB3 Lecture Notes - Demand Curve, Money Supply, Interest Rate

• School: McMaster University
• Department: Economics
• Course: ECON 1BB3
• Professor: Hannah Holmes

Document Summary

Economy is flourishing, they need to produce more and leads to a higher number of workers required. There will be an upward pressure on wages. The motive to get workers into working for the company. Firms will cut back production at this point. Fiscal policy: multiplier and crowding out, government spends million. When y (gdp) increases, c (consumption) increases, people need more money. The money demand curve shifts right, bringing the interest rate (r1) up to (r2) Md = money demand r = cost of borrowing. We also have this negative effect of investment going down. Crowding out effect, you look at how much investment (i) fall. Monetary policy: central bank increase or decrease the money supply, open market operations. Y = c + i + g r affects the aggregate demand curve through investment (i) When the money supply increases, that means r decreases.