ECON 310 Chapter Notes - Chapter 5: Fisher Hypothesis, John Maynard Keynes, Money Supply
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ECON 310 Full Course Notes
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Chapter 5 notes: the behavior of interest rates. How overall level of nominal interest rates is determined and which factors influence their behavior. Interest rates are negatively related to the price of the bonds. Understanding why bond prices change show us why interest rates fluctuate. Portfolio theory - an economic theory that outlines criteria that are important when deciding how much of an asset to buy. Market equilibrium - the point at which the quantity of supplied equals the quantity demanded. What determines the quantity demanded of an asset. Holding everything else constant, an increase in wealth raises the quantity demanded of an asset. We have more resources available to buy with. An increase in an asset"s expected return relative to that of an alternative asset, holding everything else unchanged, raises the quantity demanded of the asset. Either the asset itself becomes more profitable or the competing assets become less profitable (lower returns)
