Class Notes (835,007)
United States (324,008)
Economics (88)
ECON 101 (67)
hilmer (13)
Lecture 13

ECON 101 Lecture 13: ECON 101 CH.21 L13
Premium

2 Pages
77 Views
Unlock Document

Department
Economics
Course
ECON 101
Professor
hilmer
Semester
Spring

Description
ECON 101 CH.21 L13 Influence of Monetary and Fiscal Policy on Aggregate Demand How r is Determined - MS curve is vertical, changes in R doesn’t affect MS, which is fixed by Fed - MD curve downward \: fall in r increases money demand - Fall in P reduces money demand, lowers r - Decrease in R, increase in I and quantity of g/s demanded - To reduce money supply: raise r by reducing money supply, also quantity of g/s demanded Monetary Policy and Aggregate Demand - Federal funds rate: banks charge each other on short-term loans - Macroeconomic goals achieved by Fed using monetary policy to shift the AD curve - To change interest rate and shift the AD curve, Fed conducts open market operations to change MS - Money supply: assume fixed by central bank, does not depend on interest rate Liquidity traps - Monetary policy stimulates AD by reducing interest rate - Liquidity trap: when the interest rate is zero - Monetary policy might not work, since nominal interest rate cannot be reduced further - Central bank can make real interest rates negative by raising inflation expectations - Central bank can do OMO by using mortgages and corporate debt which lowers rate on these loans Fiscal Policy and AD - Fiscal Policy: setting of the level of govt spending and taxation by govt policymakers - Expansionary fiscal policy o Increase in G and or increase in T shifts AD right - Contractionary fiscal policy o Decrease in G and or increase in T shifts AD left Two ways Fiscal Policy Effects AD 1) Multiplier Effect a. Additional
More Less

Related notes for ECON 101

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit