tailieunhanh - Lecture Economics - Chapter 26: Monetary policy

In this chapter, students will be able to understand: What is a monetary policy transmission mechanism? Why would a Nobel Laureate economist suggest replacing the Federal Reserve with an intelligent horse? Why do people wish to hold money balances?,. | Chapter 26 Monetary Policy ©2000 South-Western College Publishing Key Concepts Summary Practice Quiz Internet Exercises * In this chapter, you will learn to solve these economic puzzles: Why do people wish to hold money balances? What is a monetary policy transmission mechanism? Why would a Nobel Laureate economist suggest replacing the Federal Reserve with an intelligent horse? * What are the Three Schools of Economic Thought? Classical Keynesian Monetarist * What is the Keynesian View of Money? People who hold cash or checking account balances incur an opportunity cost in foregone interest or profits * According to Keynes, why would people hold money? Transactions demand Precautionary demand Speculative demand * What is the Transactions Demand for Money? The stock of money people hold to pay everyday predictable expenses * What is the Precautionary Demand for Money? The stock of money people hold to pay unpredictable expenses * What is the Speculative Demand for Money? The stock of money people hold to take advantage of expected future changes in the price of bonds, stocks, or other nonmoney financial assets * How does a change in Interest Rates affect Speculative Demand? As the interest rate falls, the opportunity cost of holding money falls, and people increase their speculative balances * What is the Demand for Money Curve? A curve representing the quantity of money that people hold at different possible interest rates, ceteris paribus * How do Interest Rates affect the Demand for Money? There is an inverse relationship between the quantity of money demanded and the interest rate * What gives the Demand for Money a Downward Slope? The speculative demand for money at possible interest rates * What determines Interest Rates in the Market? The demand and supply of money in the loanable funds market * 16% 12% 8% 4% 500 1,000 1,500 2,000 A B The Demand for Money Curve MD Interest Rate Billions of dollars * . | Chapter 26 Monetary Policy ©2000 South-Western College Publishing Key Concepts Summary Practice Quiz Internet Exercises * In this chapter, you will learn to solve these economic puzzles: Why do people wish to hold money balances? What is a monetary policy transmission mechanism? Why would a Nobel Laureate economist suggest replacing the Federal Reserve with an intelligent horse? * What are the Three Schools of Economic Thought? Classical Keynesian Monetarist * What is the Keynesian View of Money? People who hold cash or checking account balances incur an opportunity cost in foregone interest or profits * According to Keynes, why would people hold money? Transactions demand Precautionary demand Speculative demand * What is the Transactions Demand for Money? The stock of money people hold to pay everyday predictable expenses * What is the Precautionary Demand for Money? The stock of money people hold to pay unpredictable expenses * What is the Speculative .

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