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ECON 101 Lecture Notes - Lecture 6: Perfect Competition, Nominal Interest Rate, Liquidity Trap

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taupebeaver566
26 May 2018
School
Duke University
Department
Economics
Course
ECON 101
Professor
Lori Leachman

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Economics 101
Lori Leachman
Part 6 • Lecture
• Bonds are how firms & gov borrow directly from public
• Loanable funds market
o Increase Supply
▪ Open market purchase
▪ Decrease rr (reserve requirement)
▪ Decrease in FF (federal funds rate)
• Causes a decrease in the real rate r
o Causes a decrease in nominal interest rate i
▪ Increases quantity of investment I
o Decrease Supply
▪ Open market sale
▪ Increase rr
▪ Increase FF
• Causes an increase in the real rate r
o Causes an increase in nominal interest rate i
▪ Decreases quantity of investment I
• Liquidity Trap
o Depressed investment demand/loans because poor expectations in economy and high supply
because everyone wanna sell - market is washed with liquidity
▪ If expansionary policy - only increase supply - making situation worse
▪ Lending market does not clear - imperfect market
o Where Demand far left and Supply far right
▪ They intersect below the 0 point of r... they intersect where r is negative
▪ People pay gov to hold their money in bonds as it is considered a safe place to put money
▪ A lot of liquidity and a lot of risk - can lead to crisis if not already
• Monetary policy is supply oriented policy - changes investment and capital accumulation and economic
growth and AS
o AS is based on
▪ Resource endowment
▪ Size/age of stock
▪ Human capital
▪ Entrepreneurship
• Fiscal policy is a corporate tax change in the investment sector
o Change investment demand, loan demand, and investment demand, and total spending
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The higher the capital utilization rate, the greater the depreciation rate.

True
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Question 4

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Question 5

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Question 7

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Question 8

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Macroeconomics

A

B

Answer

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Upper Y 1Y1

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According to the quantity theory of​ money, the inflation rate is

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​ (Round

your answer to the nearest

tenth.​)

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the ratio of money supply to nominal GDP.

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the gap between the nominal and real interest rates.

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the gap between the growth rate of money supply and the growth rate of nominal GDP.

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positivepositive​,

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The growth rate of nominal GDP

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The growth rate of real GDP

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the growth rate of money supply.

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the process of selling​ Fed-issued IOUs between banks.

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an exchange between a private bank and the Federal Reserve where the Fed buys or sells government bonds to private banks.

C.

where a bank borrows reserves or bonds from the Federal​ Reserve's discount window.

D.

an exchange between private banks where the banks buy or sell bonds to each other.

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A.

change the liquidity levels of banks.

B.

influence the discount rate.

C.

influence the federal funds rate.

D.

change the level of reserves it holds for banks.

When the Fed

sellssells

government bonds

toto

private​ banks, it

▼

the electronic reserves that banks hold.