FIN 34220 Lecture 11: 10-3-16: End of Session 5

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7 Oct 2016
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In practice usually directed at short-dated securities. An act of the bank buying gvt bonds to decrease interest rates and push down asset yields to attempt to increase borrowing and spending. But what it does is increase asset purchases which increase prices of assets. The main impact is those who already own assets, those assets go up in value so they own more, so they"re wealthier. Those who don"t own these assets, are only benefiting in an indirect way of making getting loans and such easier. But it"s harder for them to get assets and, therefore, harder to get wealthier. This increases the gap between the wealthy and the poor. How money gets into the economy: create new money for the bank to buy gvt bonds. When essential bank changes the money supply in this matter and more money gets into the economy, how does this actually affect the level of economic activity across the economy? (answered next slide)

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