ECON 2010 Chapter Notes - Chapter 30: Economic Equilibrium, Nominal Interest Rate, Seigniorage
Document Summary
Learning objectives: know the actions that the fed can take that will increase inflation, be able to identify the six costs of inflation, understand the principle of monetary neutrality. Money supply, money demand, and market equilibrium: the supply and demand for money determines the price of money. The price of money is the interest rate: the above figure shows how the supply and demand for money determine the equilibrium price level. They may use it to buy things like additional goods and services, or they may buy bonds or put it into a savings account that earns interest because it is loaned out to others who use it for investments. In both cases, an injection of money increases demand for goods and services. The classical dichotomy and monetary neutrality: david hume suggested that economic variables be divided into two groups.