ECO102H1 Lecture Notes - Demand For Money, Liquidity Preference, Opportunity Cost
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ECO102H1 Full Course Notes
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Document Summary
Introduced monetary policy: using the money supply to impact ad, money supply = currency + deposits. Currency banks: controls the money supply: multiple deposit creation motivated by profits. Central bank: controls the money supply: currency ( change the reserves at the chartered banks, interest rate manipulation (focus of today"s class) Money supply (ms) and money demand (md) determine the interest rate (i: the interest rate is conceptually similar to the price of money, md is often called liquidity preference (lp) multiple choice on final exam. Ms is determined by: the creation and destruction of currency by the bank of canada (boc, multiple deposit creation by charted banks. Loans earn interest and thus create profits for bank. M determined by: (a) price level (b) income level (c) interest rate opportunity cost for money. Interest is the opportunity cost of holding money (foregone earnings) Falls because the cost of money has increased.
