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Summary Chapter 34 ~ economics 20th global edition $5.03   Add to cart

Summary

Summary Chapter 34 ~ economics 20th global edition

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Samenvatting is afkomstig van 'Economics 20th global edition'. De samenvatting is geordend per paragraaf met afbeeldingen uit het boek en de uitleg in puntjes beschreven. Eventuele formules worden duidelijk aangegeven

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Economics Block 2 Chapter 34 Summary


LO 34.1 Discuss how the equilibrium interest rate is determined in the market for money

Interest The price paid for the of money

Interest rates:

 Many diferent interest rates
 Speak as if only one interest rate
 Determined by the money supply and money demand

Demand for money

 Why hold money?
 Transactons demand, Dt
o Determined by nominal GDP
o Independent of the interest rate
 Asset demand, Da
o Money as a store of value
o Varies inversely with the interest rate
 Total money demand, Dm

Transactions demand for money The demand for as a medium of exchange
Asset demand for money To the extant they want to hold money as an asset


total demand for money=transactions demans for money+ asset demand for money
Dm =Dt + D a

Interest rates

 Equilibrium interest rate
o Changes with shif in money supply and
money demand
 Interest rates and bond prices
o Inversely related
o Bond pays fxed annual interest
payment
o Lower bond price will raise the interest rate

LO34.2 describe the balance sheet of the federal reserve and the meaning of its major items

Federal reserve balance sheet

 Assets
o Securites
o Loans to commercial banks
 Labilites
o Reserves of commercial banks
o Treasury deposits
o Federal reserve notes outstanding

, Economics Block 2 Chapter 34 Summary


LO34.3 list and explain the goals and tools of monetary policy and tools of monetary policy

Tools of monetary policy

 Open market operatons
o Buying and selling of government securites or bonds)
o Commercial banks and the general public
o Used to infuence the money supply
 When the fed sells securites, commercial bank reserves are reduced

Open-market operations Consist of buying government bond U.S. securites) from or selling
government bonds to commercial banks and the general public




When the fed buys government bonds from commercial banks, it increases assets of the Fed and
increases the reserves of the commercial banks. This will increase the lending ability if the
commercial banks.




When the Fed buys government bonds from the
public, the efect is much the same. The assets of
the Fed increase, and as the public deposits the
funds into a commercial bank, its reserves and
lending ability will increase.

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