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4. The Demand for Money Shifts in the Money Demand Curve The Equilibrium Interest Rate Introduction to Monetary Policy Monetary Policy > Introduction to Monetary Policy Free to share, print, make copies and changes. Get yours at www.boundless.com www.www/boundless.com/economics?campaign_content=book_1515_section_117&campaign_term=Economics&utm_campaign=powerpoint&ut m_medium=direct&utm_source=boundless

5. Free to share, print, make copies and changes. Get yours at www.boundless.com Appendix

6. Key terms asset Something or someone of any value; any portion of one's property or effects so considered. equilibrium The condition of a system in which competing influences are balanced, resulting in no net change. interest rate The percentage of an amount of money charged for its use per some period of time (often a year). money supply The total amount of money (bills, coins, loans, credit, and other liquid instruments) in a particular economy. nominal interest rate The rate of interest before adjustment for inflation. Free to share, print, make copies and changes. Get yours at www.boundless.com Monetary Policy

7. Federal Funds Rate This graph shows the fluctuations in the federal funds rate from 1954-2009. The Federal Reserve implements monetary policy through the federal funds rate. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia. "Federal Funds Rate 1954 thru 2009 effective." CC BY-SA http://en.wikipedia.org/wiki/File:Federal_Funds_Rate_1954_thru_2009_effective.svg View on Boundless.comCC BY-SAhttp://en.wikipedia.org/wiki/File:Federal_Funds_Rate_1954_thru_2009_effective.svgView on Boundless.com Monetary Policy

8. Shift of the Demand Curve The graph shows both the supply and demand curve, with quantity of money on the x-axis (Q) and the price of money as interest rates on the y-axis (P). When the quantity of money demanded increase, the price of money (interest rates) also increases, and causes the demand curve to increase and shift to the right. A decrease in demand would shift the curve to the left. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia. "Supply-and-demand." GNU FDL http://en.wikipedia.org/wiki/File:Supply-and-demand.svg View on Boundless.comGNU FDLhttp://en.wikipedia.org/wiki/File:Supply-and-demand.svgView on Boundless.com Monetary Policy

9. Fluctuation in Interest Rates This graph shows the fluctuation in interest rates in Germany from 1967 to 2003. Interest rates fluctuate over time as the result of numerous factors. In Germany, the interest rates dropped from 14% in 1967 to almost 2% in 2003. This graph illustrates the fluctuations that can occur in the short-run and long-run. Interest rates fluctuate based on certain economic factors. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia. "German bank interest rates from 1967 to 2003 grid." Public domain http://en.wikipedia.org/wiki/File:German_bank_interest_rates_from_1967_to_2003_grid.svg View on Boundless.comPublic domain http://en.wikipedia.org/wiki/File:German_bank_interest_rates_from_1967_to_2003_grid.svgView on Boundless.com Monetary Policy

10. Free to share, print, make copies and changes. Get yours at www.boundless.com Monetary Policy Suppose the rate of return paid on bonds rises. What will happen to the demand for money and the interest rate? A) The demand for money will fall and the interest rate will increase B) The demand for money will fall and the interest rate will decrease C) The demand for money will rise and the interest rate will increase D) The demand for money will rise and the interest rate will decrease

11. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Monetary Policy Suppose the rate of return paid on bonds rises. What will happen to the demand for money and the interest rate? A) The demand for money will fall and the interest rate will increase B) The demand for money will fall and the interest rate will decrease C) The demand for money will rise and the interest rate will increase D) The demand for money will rise and the interest rate will decrease

12. Free to share, print, make copies and changes. Get yours at www.boundless.com Monetary Policy Which of the following statements about a shift in the money demand curve is NOT true? A) The demand curve shifts to the right when demand for money increases B) The price of money is measured by the interest rate. C) Money is not an interest-bearing asset D) Demand for money determines how a person's wealth should be held

13. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Monetary Policy Which of the following statements about a shift in the money demand curve is NOT true? A) The demand curve shifts to the right when demand for money increases B) The price of money is measured by the interest rate. C) Money is not an interest-bearing asset D) Demand for money determines how a person's wealth should be held

14. Free to share, print, make copies and changes. Get yours at www.boundless.com Monetary Policy Assume there is an influx of immigration and demand for money shifts outward. What would happen? A) The supply of money would remain constant and interest rates would increase B) The supply of money would increase and interest rates would increase C) The supply of money would increase and interest rates would remain constant D) The supply of money would remain constant and interest rates would decrease

15. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Monetary Policy Assume there is an influx of immigration and demand for money shifts outward. What would happen? A) The supply of money would remain constant and interest rates would increase B) The supply of money would increase and interest rates would increase C) The supply of money would increase and interest rates would remain constant D) The supply of money would remain constant and interest rates would decrease

16. Attribution Wikipedia. "Expansionary policies." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Expansionary_policiesCC BY-SA 3.0http://en.wikipedia.org/wiki/Expansionary_policies Wikipedia. "Interest rate." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Interest_rate#Reasons_for_interest_rate_changesCC BY-SA 3.0http://en.wikipedia.org/wiki/Interest_rate#Reasons_for_interest_rate_changes Wikipedia. "Money supply." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Money_supplyCC BY-SA 3.0http://en.wikipedia.org/wiki/Money_supply Wikipedia. "Money demand." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Money_demandCC BY-SA 3.0http://en.wikipedia.org/wiki/Money_demand Wiktionary. "asset." CC BY-SA 3.0 http://en.wiktionary.org/wiki/assetCC BY-SA 3.0http://en.wiktionary.org/wiki/asset Wiktionary. "money supply." CC BY-SA 3.0 http://en.wiktionary.org/wiki/money+supplyCC BY-SA 3.0http://en.wiktionary.org/wiki/money+supply Wiktionary. "asset." CC BY-SA 3.0 http://en.wiktionary.org/wiki/assetCC BY-SA 3.0http://en.wiktionary.org/wiki/asset Wikipedia. "Money demand." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Money_demandCC BY-SA 3.0http://en.wikipedia.org/wiki/Money_demand Wikipedia. "Demand curve." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Demand_curveCC BY-SA 3.0http://en.wikipedia.org/wiki/Demand_curve Wikipedia. "nominal interest rate." CC BY-SA 3.0 http://en.wikipedia.org/wiki/nominal%20interest%20rateCC BY-SA 3.0http://en.wikipedia.org/wiki/nominal%20interest%20rate Wikipedia. "Money supply." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Money_supply#Monetary_exchange_equationCC BY-SA 3.0http://en.wikipedia.org/wiki/Money_supply#Monetary_exchange_equation Wikipedia. "Market equilibrium." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Market_equilibriumCC BY-SA 3.0http://en.wikipedia.org/wiki/Market_equilibrium Wikipedia. "Interest rate." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Interest_rate#Reasons_for_interest_rate_changesCC BY-SA 3.0http://en.wikipedia.org/wiki/Interest_rate#Reasons_for_interest_rate_changes Wiktionary. "equilibrium." CC BY-SA 3.0 http://en.wiktionary.org/wiki/equilibriumCC BY-SA 3.0http://en.wiktionary.org/wiki/equilibrium Wiktionary. "interest rate." CC BY-SA 3.0 http://en.wiktionary.org/wiki/interest+rateCC BY-SA 3.0http://en.wiktionary.org/wiki/interest+rate Free to share, print, make copies and changes. Get yours at www.boundless.com Monetary Policy