ECON 102 1st Edition Lecture 30 Outline of Last Lecture 1 The Federal Reserve System 2 Open Market Operations 3 Demand for Money a Money Demand Curve Outline of Current Lecture I II Money Demand Curve Shifts Cont Money and Interest Rates a Money Supply Curve Current Lecture Money Demand Curve Shifts Changes in aggregate price level o Rise in aggregate price level Higher money demand o Fall in aggregate price level Lower money demand Changes in real GDP o Rise in basket of goods and services purchased Larger demand for money o Fall in basket of goods and services purchased Fall in demand for money Changes in Technology o i e Credit Cards Changes in Institutions Money and Interest Rates According to the liquidity preference model of the interest rate the interest rate is determined by the supply and demand for money The Money Supply Curve shows how the nominal quantity of money supplied varies with the interest rate The target federal funds rate is the Federal Reserve s desired federal funds Long Term Interest Rates o Long term interest rates don t necessarily move with short term interest rates o If investors expect short term interest rates to rise investors may buy short term bonds o In practice long term interest rates reflect the average expectation in the market about what s going to happen to short term rates in the future These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Expansionary monetary policy is monetary policy that increases aggregate demand Contractionary monetary policy is monetary policy that decreases reduces demand Inflation targeting occurs when the central bank sets an explicit target for the inflation rate and sets monetary policy to hit that target
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