ECON-E 202 Lecture Notes - Lecture 26: Demand Curve, Price Level, Opportunity Cost
Lecture 4/17/18
Anything that affects the amount
of money in existence is going to affect all markets.
■ Holding money
– To use money, one must hold money.
■ If people desire to hold money, there is a demand for money.
■ The demand for money: the amount of money people wish to hold
– Transactions demand
– Precautionary demand
– Asset demand
Transactions Demand
• Holding money as a medium of exchange to make payments
• The level varies directly with nominal national income
■ Precautionary Demand
– Holding money to meet unplanned expenditures and emergencies
– The level varies with the interest rate
■ Asset Demand
– Holding money as a store of value instead of other assets
– The level varies with the interest rate
• When the interest rate rises the opportunity cost of holding money increases and the quantity
of money demanded faills
• When the level of income (GDP) or the price level changes, the money demand curve shifts
Document Summary
Anything that affects the amount of money in existence is going to affect all markets. If people desire to hold money, there is a demand for money. The demand for money: the amount of money people wish to hold. Transactions demand: holding money as a medium of exchange to make payments, the level varies directly with nominal national income. Holding money to meet unplanned expenditures and emergencies. Holding money as a store of value instead of other assets. The decrease in interest stimulates invesment: the recessionary gap is caused by insufficient ad, to increase ad, use expansionary moneytarypolicy, ad increases and real gdp, price level, and employment. Thus, increases in the supply of money is expansionary (easy) monetary policy. Recall, the dynamic model can illustrate real world outcomes. All three curves shift: the economy experiences long-run economic growth (lras curve increases) Changes to *short-run equilibrium* determines changes to the *price level and real actual gdp*