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Lecture 31-Money, Banking, Monetary Policy (interest rates).docx

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James Pesando

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Money Banking Monetary Policy Interest Rates The Transmission MechanismMoney supply MS and Money Demand MD determine the interest rate Interest rate affects aggregate demand MS currencybank deposits is determined by o Central bank bank of Canada which determines bank reserves we will study nexto Commercial banks via multiple deposit creationWhat determines MDThe Demand for Money Intuition Households hold two assets o Money currencybank deposits pays no interesto Bonds pay interestExampleYou haveMoney 1000 Bonds10000 Would you increase or reduce money holdings ifThe interest
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