ECON 110 Chapter Notes - Chapter 28: Monetarism, Capital Outflow, Potential Output

• School: Queen's University
• Department: Economics
• Course: ECON 110
• Professor: Ian James Cromb

Document Summary

Chapter 28 money, interest rates, and economic activity. People hold their money in interest-earning assets (bond) and non-interest earning assets (money-mediums of exchange) -> simplification concept. Present value (pv): value now of one or more payments or receipts made in the future; referred to as discounted present value: depends on the interest rate. Pv = r1 (amount received one year from now) / 1 + i (interest: accounts for one year at stable interest rate. Pv = rt / (1 + i)t: where t = number of years, accounts for compounded interest over multiple years. Treasury bills: only one payment at some point in future. Present value of bond that promises a future payment or sequence of future payments is negatively related to the market interest rate (when i goes us, pv goes down) Pv of bond is the most someone would be willing to pay now to own the bond"s future payments.