Review Notes - Monetary Theory and Policy

- what kind of assets make up wealth?

- money, bonds, real capital

- what are the differences between the 3?

- what is the relationship between bond prices and the market rate of interest?

- the supply of money (who controls it and how?)

- the demand for money - why do people hold money?

- transactions demand

- precautionary demand for money

- speculative demand for money

- what is real money demand?

- what variables affect money demand and how?

- the market for money

- what is equilibrium?

- how is equilibrium reached if not there?

- impact of changes in money demand and supply on market interest rates?

- how do changes in the money supply affect the macro economy?

- the Keynesian transmission mechanism (indirect)

- if the Fed increases the money supply, i decreases, which causes I to increase but when I increases, aggregate expenditures also increases and equilibrium output and income (Y) also increase and any increase in Y also increases AD.

- the classical transmission mechanism (direct)

- the equation of exchange.

- the velocity of money.

- velocity and real output are fixed, hence, an increase in money results in an increase in prices (AD increases).

- the monetarist transmission mechanism

- differences between the three theories?

- transmission mechanisms

- velocity of money

- demand for money

- impact of money on investment

- final impact on economy

- monetary policy

- what is monetary policy (increase or decrease in the money supply)

- how effective is it compared to fiscal policy?

- the keynesian viewpoint

- the monetarist viewpoint

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