ECON 20B Lecture Notes - Lecture 2: Federal Open Market Committee, Federal Reserve Bank, Fractional-Reserve Banking
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ECON 20B Full Course Notes
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Main idea: saw how to measure in ation using cpi or gdp de ator, now turning to a rst factor that determines in ation, this lecture illustrates a close connection between in ation and the monetary system. Real and nominal interest rates: last lecture, saw how to adjust for in ation, now want to differentiate between real interest rates adjusted for in ation. And nominal interest rates not adjusted for in ation: when deposit money, earn a nominal return. But, future $ are worth less b/c of in ation. Then can buy 21 ipad"s, and real return = (21 20)/20 = 5% in ation. ipad=$ 525, buy 20, real return = (20 20)/20 = 0 or a. 10% in ation. ipad=$ 550, buy 19, real return = (19 20)/20 = . 05, or a -5% real return. 5% de ation. ipad=$ 465, buy 22, real return = (22 20)/20 = . 10, or a 10% real return.
