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Price of Money Money Supply: Relative To Other Currency Immediate Money Less Expensive

The document discusses the relationship between interest rates, money supply, exchange rates, and aggregate price levels. It shows how increasing or decreasing the money supply or interest rates can impact exchange rates, exports, inflation, and economic growth. Tools of central banks like changing the discount rate, reserve requirements, and conducting open market orders are also described as ways to increase or decrease the monetary base and money supply.

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Booster Hidro
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38 views

Price of Money Money Supply: Relative To Other Currency Immediate Money Less Expensive

The document discusses the relationship between interest rates, money supply, exchange rates, and aggregate price levels. It shows how increasing or decreasing the money supply or interest rates can impact exchange rates, exports, inflation, and economic growth. Tools of central banks like changing the discount rate, reserve requirements, and conducting open market orders are also described as ways to increase or decrease the monetary base and money supply.

Uploaded by

Booster Hidro
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Price of Money Money Supply

Exchange Rate Accelerate Growth


Interest Rate
Relative to Other Currency Immediate Money Less Expensive

Increase Exchange Rate Export Increases


Interest Rate
Relative to Time
Aggregate Price Level Value of Money Falls
Aggregate Price Level
Relative to Goods and
Services
Slow Growth
Interest Rate
Immediate Money More Expensive

Decrease Exchange Rate Export Slows

Aggregate Price Level Value of Money Rises

Interest Rate &


Money Supply

Nominal Rate Falls

Increase Money Supply


Real Rate Falls

Inflation May Rise Nominal Rate Rises


Exchange Rate
Exchange Rate &
Aggregate Price Level Money Supply

Nominal Rate Depreciate

Increase Money Supply


Real Rate Depreciate

Inflation May Rise Real Rate Appreciate


M1 Money Supply

Currency in Circulation Demand Deposits

Commercial Bank

Person Deposit $100 Checking Account

Reserve Lending
Loan $90

Person
Money Created

Tools of a Central Bank

Discount Rate

Borrowing

Increase Monetary Base

Money Supply

Borrowing

Decrease Monetary Base

Money Supply
Reserve
Requirement

Leakage

Increase Money Multiplier

Money Supply

Leakage

Decrease Money Multiplier

Money Supply

Open Market
Orders

Liquidity

Purchase Monetary Base

Money Supply

Liquidity

Sale Monetary Base

Money Supply

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