ECO102H1 Lecture Notes - Money Supply, Liquidity Preference, Interest Rate

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14 Apr 2014
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ECO102H1 Full Course Notes
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ECO102H1 Full Course Notes
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Using the money supply to impact ad. Currency (changes the reserves at the chartered banks) Changing the physical amount of money -> creates a different interest rate. 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) A) the creation and destruction of currency by the bank of canada (boc) B) multiple deposit creation by chartered banks. Loans earn interest and thus profit for banks. How it contributes to your own personal preference. Money (currency + deposits): pay no interest. Would you increase or decrease your money holdings if: Increase b/c the dollar volume of transaction increases. Increase b/c the real volume of transactions increase. Interest is the opportunity cost of holding money (foregone earnings) Fall because the cost of money has increased. C) interest rate changes are movement along md.

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