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. !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Lecture!18!!Outline(of(Last(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!!Outline(of(Current(Lecture((I. Money!Demand!II. Monetarists!III. Aggregate!Demand!a. Why!is!Aggregate!Demand!Downward!Sloping?!Current(Lecture!1. Money!Demand!a. The!Federal!Reserve!System!manipulates!Money!Supply!to!affect!(increase/decrease)!Interest!Rates.!b. The!Money!Supply!depends!on!the!Money!Demand!Curve!and!the!Elasticity!of!Money!Demand.!c. If!Money!Demand!is!steep,!then!it!is!considered!to!be!Inelastic,!which!means!Interest!Rates!are!sensitive.!d. If!the!Investment!Curve!is!steep,!it!is!Inelastic.!e. !!!! !2. Monetarists!a. Monetarists!disregard!Keynes;!they!are!classified!as!New!Classical!Economists.!b. Equation!of!Exchange:!MV!=!PQ!(Not!a!Theory,!because!there!are!no!assumptions)!!!((((((ECON(104(((11th(Edition(! !i. Theories!have!assumptions;!we!have!to!know!the!assumptions!to!understand!the!theories.!c. If!M!Increases,!then!PQ!Increases!or!M!Increases!and!V!Decreases,!then!PQ!don’t!Change.!d. Monetarists!assume!that!V!is!Fixed!(Changes!Slowly);!V!=!PQ!/!M!because!the!way!that!we!spend!money!is!defined!by!cultural!norms.!!e. Monetarists!assume!Full!Employment!that!Q!is!Fixed.!Full!Employment!rarely!occurs.!f. If!V!an!Q!are!Fixed,!the!economy!can!only!produce!so#much;!therefore!increasing!Money!Supply!with!a!stimulus!price!increase!would!lead!to!Inflation.!!3. Aggregate!Demand!i. !!!!!!!! !ii. Aggregate!Demand!represents!the!relationship!between!Price!Level!and!Total!Quantity!of!Goods.!b. Why!is!Aggregate!Demand!Downward!Sloping?!i. Impact!on!Interest!Rates;!As!Demand!increases!Y!Interest!Rates!Increase,!Investment!Decreases,!and!Aggregate!Expenditure!Decreases.!(Rising!Prices!to!Declining!Output)!ii. Real!Balance!Effect:!As!P!Increases,!Purchasing!Decreases!(W/PQ),!which!leads!to!a!Decrease!in!Demand!and!Output.!iii.
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