Ch 5-11 Notes

Question 1

bonds

Answer 1

corporate debt sold in a market place;

market price must be less than the face value in order for people to buy it;

inversely related to interest rate

Question 2

liquidity preference

Answer 2

preference to hold cash (and not bonds, etc.)

Question 3

aggregate expenditure

Answer 3

think of it as consumption,

C+I+G

Question 4

Loanable funds theory is flawed because

Answer 4

it takes two decisions into 1

1) how much do i want to save?
2) how do i want to save it?

Question 5

reasons to demand money

Answer 5

precautionary (hedging against an unknown)

Speculative (compare to other assets)

Transactions

Question 6

income elasticity of money demand

Answer 6

refers to the sensitivity of the quantity demanded for a certain product in response to a change in consumer incomes

(% change in Money Demand) / (% change in GDP)

Question 7

LM

Answer 7

liquidity preference=money supply

collection of all equilibrium points from money market

Question 8

dollarized

Answer 8

country used US dollar even though it is not the official currency

Question 9

legal tender

Answer 9

all debts public and private

Question 10

money multiplier

Answer 10

Money supply/money base