MGEC71H3 Chapter Notes - Chapter 1: Foreign Exchange Market, Money Supply, Price Level

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Document Summary

Financial innovation in particular, dramatic improvements in information technology have led to new means of delivering financial services electronically (e-finance) and higher profits result from creative thinking. Changes in rules & regulations also influence how financial institutions behave and compete with each other, how we interact with them, how profitable they are, and how much benefit their customers gain (from their services) These innovations impact the velocity of money (mxv = pxy: money, money anything that is generally accepted in payment for goods and services or in the repayment of debts, money and monetary policy. Evidence suggests that money plays an important role in generating business cycles (movements in aggregate real output. Recessions (unemployment) and booms (inflation) changes in aggregate economic activity lead to: monetary theory relates changes in the quantity of money (supplied) to changes in aggregate sr real economic activity and the price level.