ECON 104 11th Edition Lecture 17 Outline of Last Lecture I Supply of Money II Money Demand Outline of Current Lecture I Real Economy II Keynesian System a Supply and Money Demand in the Money Market b Money Supply Curve Targeting the Money Supply for Growth c Aggregate Supply d Interest Curve III People Influence Transactions Money Supply IV Monetarists Current Lecture 1 Real Economy The part of the economy that is concerned with actually producing goods and services as opposed to the part of the economy that is concerned with buying and selling on the financial markets 2 Keynesian System a Supply and Money Demand in the Money Market r Interest Rate Equilibrium b Money Supply Curve Targeting the Money Supply for Growth c Although there is a large gap between MS1 and MS2 Money Supply increases can be quite small to keep Money Supply at a minimum and increase Interest Rates 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 d Aggregate Supply E Aggregate Expenditure Y Income E1 AE C I G E2 AE C I G 2 e Interest Curve 3 People Influence Transactions Money Supply a Reluctant Borrowers Just Because Interest Rates are low this doesn t mean that people will borrow b Reluctant Lenders Banks are reluctant to lend money due to their large amount of reserves c Liquidity Trap When Interest Rates are so low that the Federal Reserve System finds it impossible to lower them any further 4 Monetarists The Response to Keynes System a Equation of Exchange MV PQ i M Money V Velocity How often Money is Spent P Price Level Q Output ii MV PQ is equal to D S and AE GDP b Increased M Fixed V Increased P Fixed Q Using monetary policies to control prices is very effective
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