ECON 2400 Lecture 12: 12
8 Dec 2015
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Md/p schedule is drawn for a given y (output) Effect of a decrease in real money demand. Atm made it easy for people to convert bond into money and vice versa. As a result, people keep a larger part of their wealth in terms of bonds and stocks and less money. Whenever they need cash money, they could easily convert bonds and stocks into money. This decrease in demand for real money balance since l0 will decrease. D=md/p=l0-li(r+ ) +ly*y real money demand schedule shifts to the left. Intuition: people hold less cash (real money balance decreases), demand for bond increases (people want to buy more bonds) thus price for bond increases, nominal interest rate decreases. i=coupon/price of. Important aside: real money demand will also decrease if people use more credit cards. Effect of an increase in equilibrium output on money market. Md/p is drawn for a given y (output).
