IR 213 Lecture Notes - Lecture 18: Dual Mandate, Bimetallism, Devaluation
6 Apr 2016
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Interest rates and the money supply: if interest rates are low, people borrow more. Money comes out of banks (mb) and becomes cash in people"s hands (m0) Velocity of money increases: if interest rates are high, people save. Money goes out of people"s hands (m0) and into banks. Inflation and the economy: low real interest rates stimulate the economy (i. e. cause growth) Firms borrow money and buy factories, etc: low interest rates cause inflation. They increase the money supply: however, governments in debt may want inflation for its own sake, federal reserve is politically independent. Dual mandate: keep inflation low and unemployment. The big bad fed: politicians are too willing to trade inflation later for growth and low unemployment now. So we don"t want them in control: but the fed is undemocratic and super powerful. So ron paul is freaked out about that. Good money and bad: a story about bimetallism, dollars were initially exchangeable for either silver or gold.
