Monetary Policy
1: Howe interest rates are set in the money market
2: How monetary policy affects macro outcomes
3: The constraints on monetary policy impact
4: The differences between Keynesian and monetarist monetary theories
Monetary policy: the use of money and credit controls to influence macroeconomic outcomes
Interest rate: the price paid for use of money
Money Supply (M1): currency held by the public, plus balances in transactions accounts
Money Supply (M2): M1 plus balances in most savings accounts and money market mutual funds
The forgone interest if the opportunity cost (price) of money people choose to hold.
Demand fort money: the quantities of money people are willing and able to hold at alternative interest rates, ceteris paribus
Portfolio decision: the choice of how(where) to hold idle funds
Transaction demand for money: money held for the purpose of making everyday market purchases
Precautionary demand for money: money held for unexpected market transactions or for emergencies
Speculative demand for money: money held for speculative purposes, for later financial opportunities
Equilibrium rate of interest: the interest rate at which the quantity of money demanded in a given time period equals the quantity of money supplied