ECO209Y5 Lecture Notes - Lecture 10: Monetary Policy, Real Interest Rate, Economic Equilibrium

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Lecture #10 money, banking and monetary policy. Money anything that is widely accepted as payment for goods and services. Store of value - trade current goods for future goods. M1+ = currency outside of banks + chequable deposits held at chartered banks. M1++ = m1 + non chequable deposits (i. e. savings accounts) You can even use credit to make transactions (specifically credit card) Inflation rate i = (p1-p)/p = p1/p 1. Nominal bond buy worth today and get tomorrow. Someone who gives up today gives up 1/p of real goods. Someone who receives tomorrow gets 1+r/p1 of real goods. Real return of buying a bond, r = [(1+r)/p1]/[1/p] 1 ir will be small so we ignore it so it will become the fisher relation. Note the real interest rate can run negative. Credit card systems are costly and thus sold at a private price. X = real quantity of credit services.

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