Chapter 28.doc

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Economics for Management Studies
Iris Au

Chapter 28 - Money, Interest Rates, and Economic Activity Bonds - PV - the value now of one or more payments or receipts made in the future; often referred to as discounted pv - the pv of any bond that promised a future payment is negatively related to the market interest rate - the pv of a bond is the most someone would be willing to pay now to own the bond's future stream of payments - the equilibrium market price of any bond will be equal to its pv - market interest rate ↑, price of bond ↓, bond yields ↑ Demand for Money - total amt of money balances that the public wants to hold for all purposes - MD related to bond demand Determinants of MD - Interest rate • interest rate ↑, opportunity cost of holding money ↑, quantity of money demanded ↓ - Real GDP • real GDP ↑, volume of transactions ↑, quantity of money demanded ↑ - Price level • price level ↑, dollar value of a given volume of transactions ↑, quantity of money
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