EC202 1nd Edition Lecture 29Outline of Last Lecture I. Monetary policyII. Money Outline of Current Lecture II. Factors effecting money demandCurrent Lecture-factors effecting money demand-Nominal interest rate-Affects the cost of holding money-Real output-Affects the benefits of holding money-Price level-Affects the benefits of holding money-Nominal interest rate (i)-Determines the opportunity cost of holding money-The higher the nominal interest rate-The greater the opportunity cost of holding money and, therefore, the less money demanded-Thus higher interest rates lower the quantity demanded of money-Real income or Output (Y)-An increase in real income raises the quantity of goods and services that people and businesses want to buy and sellThese 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.-Higher desired transactions are accommodated by holding more money, increasing the demand for money-Thus higher real output raises the demand for money-price level (P)-The higher the prices of goods and services, the more dollars that are needed to make agiven set of transactions-Higher desired transactions are accommodated by holding more money, therebyincreasing the demand for money-Thus a higher price level increases the demand for money-Money demand curve-Relates the aggregate quantity of money demanded “M” to the nominal interest rate “i”-Because an increase in the nominal interest rate increases the opportunity cost of holding money, the money demand curve slopes downward-The quantity of money demanded is lower at higher interest
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