ECO100Y5 Chapter Notes - Chapter 28: Output Gap, Capital Outflow, Potential Output
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ECO100Y5 Full Course Notes
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Chapter 28- money, interest rates, and economic activity. Pv= r1/(1+i: a sequence of future payments. The higher interest rate implies that any future payments are discounted at a higher rate and thus have a lower present value: a general relationship. The present value of any bond that promises a future payment or sequence of future payments is negatively related to the market interest rate. Bond riskiness: an increase in the riskiness of any bond leads to a decline in its expected present value and thus to a decline in the bond"s price; the lower bond price implies a higher bond yield. 28. 2 the theory of money demand: demand for money- the total amount of money balances that the public wants to hold for all purposes. Cost of holding money is the income that could have been earned if that wealth were instead held in the form of interest earning bonds opportunity cost of holding money.