MGEA06H3 Lecture Notes - Monetary Transmission Mechanism, Interest Rate, Shortage

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Published on 18 Apr 2013
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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
demanded
Monetary Equilibrium and National Income
-monetary equilibrium - MD = MS
- in the market for money, the interest rate is that "price" that adjusts to bring about equilibrium
-monetary transmission mechanism - the channels by which a change in the demand for or
supply of money leads to a shift of the aggregate demand curve
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Document Summary

Chapter 28 - money, interest rates, and economic activity. Demand for money total amt of money balances that the public wants to hold for all purposes. Price level real gdp price level demanded interest rate . , dollar value of a given volume of transactions . Monetary equilibrium - md = ms in the market for money, the interest rate is that price that adjusts to bring about equilibrium. Monetary transmission mechanism - the channels by which a change in the demand for or supply of money leads to a shift of the aggregate demand curve: changes in the equilibrium interest rate money supply . => equilibrium interest rate money demand . => excess demand for money => sell bonds. => equilibrium interest rate : changes in desired investment and consumption money supply . => desired investment expenditure : changes in aggregate demand money supply .

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