Economics

Money-commodity money, Fiat. Money supply=currency in hands of public+other assetsas means of payment (demand deposits, traverler's checks, savings accounts, time deposits, mutual funds)

M1=currency in hands of public+traverler's checks+demand deposits+other checkable deposits CU+CD

M2= M1+savings account+small time deposits(<100,000),+non institutional(retail)money mkt. mutual funds

M3= M2+Large term deposits(not insured)+institutional money market mutual funds+long term repos(repurchaseagreements, gov't securities)+Long term euro dollar deposits.

Balance Sheet Assets= Cash in vault 1mil. Balance at Fed 5 mil.=reserves6mil. Bonds 10 mil. Loans 50 mil. Buildings 20 mil. Total Assets=86 mil. Liabilities=60mil. Savings deposits 10mil. Total Liab=70 mil

Net worth= TA-TL=16 mil. Money sup= CU+[1/RRR]*(reserves)

RRR=% of demand deposits Fed requires banks to hold as cash RRR=10% (.10)(60m)=6.0 RRRDD=res.

DD=[1/RRR] (reserves) 1/RRR is demand deposit multiplier Probs. time lag+exact control over change depends on banks lending IF RRR dec, Ms would inc Chang in Ms=1/rrr(change in reserves)

Money sup.=CU+DD or CU+[1/RRR]*(reserves) IF RRR inc Money sup dec. If RRR dec money inc.

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short run decrease in gov't purchases-decrease real GDP because of multiplier effect. Discount Rate=rate at which banks can borrow from Fed. declinde will be lessened by decrease in the price level and the interest rate. real GDP inc

Initial[Ms dec, r inc, I dec, a dec, Y dec] response[Md dec, r dec, I inc, a inc, Y inc] end result Y dec r inc r=Auto Stabilizer Initial[T dec, a inc, AE inc, Y ic] response[Md inc, r inc, I dec, a dec, Y dec]

End result= Y inc, r inc I dec, and a is ambiguous. 2 and gov't buys 10 mil in bonds Ms inc by 50 mil

Money Demand= Income +, Prices +, Interest rate inc Money demand dec. P-Y reletionship when goods and money market are in Equil. INC in Ms-AD shifts right DEC in Ms shift AD left

AD shifts rightward-gov't purchases, investment, autonomous, or net expeort inc. in short run, inc in real GDP, by causing unit cost to inc, price inc

OIL-higher oil prices AS shift up WEATHER-Good=shift down, bad=shift up TECHNOLOGY-improvments=AS shift down

Basic Pricing Model-(1+% markup over cost)(marginal cost) if % markup =0 perfect= competition

Gov't Purchases inc-Fiscal policy-AE inc, Y inc, Md inc, r inc, P inc, AD inc, P inc

LR: If Yun, wages dec, P inc, AS shift down return to Yfe

Stagflation-high unemployment and high inflation (result of negitive supply shocks)

Demand Shocks-caused by spending shocks or by change in monetary policy

G INC, GDP inc, Unit cost inc, P inc, Md inc, Int.

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