Econ Final

Front 1

Money Demand (MD)

Back 1

Keynes
-Money which is held.
- Held for three reasons: Transaction demand, precautionary demand, and speculative demand.

Front 2

Transaction demand

Back 2

$ used to purchase goods and services.

Based on personal income and prices (see slides)

Front 3

Personal income (Trans. Demand)

Back 3

(Income, consumption, MD). All positive correleated.

Front 4

Prices (Trans. Demand)

Back 4

Prices and Money demand are positively correlated

Front 5

Precautionary Demand

Back 5

Money held for unforseen circumstances

Front 6

Specualtive Demand

Back 6

Money held for investment opportunities, such as:

- Stock market
-Bond market

Based on interest rates (Negatively/inversely correlated)

Front 7

Excess MS

Back 7

MD<MS

- Occurs during high interest rates ( 10% and up)
- Demand for Bonds and price of Bonds increase, leading to lower interest rates.
- All points on money supply curve ABOVE MD equilibrum.

Front 8

Excess MD

Back 8

MD>MS

- Occurs during low interest rates (2% and less)
- Bond supply increases, but profit from bonds decrease.
- All points on money supply curve BELOW MD equilibrum.

Front 9

MS and MD equilibrium

Back 9

MD = MS

- Occurs when interset rates are at money market level (about 5%)
- MS point at MD equilibrium point.

Front 10

Monatarist theory

Back 10

Friedman

- Fed should protect level of GDP
- Money supply should be adjusted to protect GDP

Front 11

Recession solution (Monatarist)

Back 11

Increase MS, which increases AD and thus GDP

Front 12

Inflation solution (Monatarist)

Back 12

Decrease MS, which decreases AD and thus GDP

Front 13

Quantity theory of money

Back 13

Spending = Production

M x V = P x Q