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Chapter 4 – The financial market

Chapter 4 – The financial market. Money demand Money supply Determination of the interest rate. Money demand. Money supply M s = M. Figure 4-2 The Determination of the Interest Rate. Changes to M D and M s. Model. Money demand = Mone y supply.

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Chapter 4 – The financial market

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  1. Chapter 4 – The financial market • Money demand • Money supply • Determination of the interest rate

  2. Money demand

  3. Money supply Ms = M Figure 4-2 The Determination of the Interest Rate

  4. Changes to MDand Ms

  5. Model

  6. Money demand = Money supply Supply of money = Demand for money So, what happens when the Fed increases money supply H? It increases by more than one-to-one!

  7. Multiplier = $1000

  8. M1 since 2005

  9. Discount rate

  10. Required Reserve Ratio Was $44 million before the crisis

  11. Open Market Operations since 2005

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