EC202 1nd Edition Lecture 30 Outline of Last Lecture I. Factors affecting money demandOutline of Current Lecture II. Equilibrium in the money marketCurrent Lecture-equilibrium in the money market-The Fed has ultimate control of the U.S. money supply -Equilibrium-No tendency for change-When the entire supply of money is willingly held-Occurs at the intersection of the money supply curve and the money demand curve-reaching equilibrium-Recall the inverse relationship between interest rates and bond prices-If the nominal interest rate is too low-The public’s quantity demanded for money is greater than the quantity supplied-The public wants to hold more money-So they sell some interest-bearing assets-Which depresses the price of bonds-Which increases the interest rate (i)-As the interest rate rises, the quantity demanded of money falls and equilibrium resultsThese 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.-The Fed sets the short-run interest rate-If the Fed increases the money supply, the interest rate falls-If the Fed decreases the money supply, the interest rate rises-The Fed’s primary tool -Open-market operations-Buying bonds to increase the money supply-Selling bonds to decrease the money
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