Term

Definition
Change in Deposits = Change in Reserves = 1/rr 


Term
Money Multiplier Equation 

Definition
m=C+D/C+R C+D=Money Supply C+R=Monetary Base 


Term

Definition
Md=L0L1(inlfation exp.)+L2(Y)L3(r) 


Term
Interest Rate Formula (from Money Demand) 

Definition
r=[L0L1(inflation exp.)+L2(Y)MD]/L3 


Term
Reasons for holding more money 

Definition
stock market gets riskier bond prices increase interest rate decreases income increases 


Term
effects of holding more money 

Definition
Money demand shifts right, so... interest rate increases bond prices drop LM curve shifts left 


Term
Effects of increase in money supply 

Definition
Interest rates drop LM shifts down and to the right 


Term

Definition
Draw money market graph. r is y axis and m is x axis. MS is vertical and MD is downward sloping. When MD increases (from increase in income or whatever) so does r. To the right of this graph put the LM graph with r as y axis and Y as x axis. Slope of upward sloping LM curve is L2(income elasticity) over L3 (interest rate elasticity) 


Term

Definition
inelastic, steep MD curve and LM curve. takes a big increase in r to get to equilibrium. 


Term

Definition
elastic, flat MD and LM curve. takes small change in r to get to equilibrium. 


Term
Classical vs Keynes on elasticity 

Definition
Classical: L3=0(perfectly inelastic/steep) Keynes: L3=infinity(perfectly elastic/flat);liquidity trap 


Term

Definition
Increase in MS: Down on LM curve 

