ECON 105 Chapter Notes - Chapter 15: Money Supply, Aggregate Demand, Business Cycle

• School: Simon Fraser University
• Department: Economics
• Course: ECON 105
• Professor: Junjie Liu

Document Summary

Chapter 15 monetary & fiscal policy (this looks over short run effects of m. p. Great depression occurred due to made policies. Stimulating the ms can decrease recession & lower interest rate. If gov"t can"t withdraw money from the economy then inflation occurs. Monetary policy: the setting of the money supply by the central bank. Fiscal policy: the setting of the level of government spending and taxation. Liquidity: the ease in which an asset can be converted to an economy"s medium of exchange. The demand for money is constructed from the demand for liquidity. Interest rate changes to balance the q^money demanded & q^money supplied; the. Money supply: supply of money is perfectly inelastic (central bank has fixed the q of money in the economy) Money demand: high interest rate influences the cost to hold money, which reduces the q of md. Less people will borrow if r is high so the investment will decrease = quantity of md to decrease.