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Lecture 10 Notes

Lecture 10 Notes

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Published by: Dao Tuan Anh on Nov 13, 2007
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09/06/2012

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HE191Principles of EconomicsLecture 10
Chapters 29 and 30Principles of Economics, Fourth EditionN. Gregory Mankiw
 
In this lecture, look for the answers tothese questions
:
What assets are considered “money”? What are thefunctions of money? The types of money?
What is the Federal Reserve?
What role do banks play in the monetary system? How dobanks “create money”?
How does the Federal Reserve control the money supply?
How does the money supply affect inflation and nominalinterest rates?
Does the money supply affect real variables like real GDPor the real interest rate?
How is inflation like a tax?
What are the costs of inflation? How serious are they?
 
What Money Is, and Why It’s Important
Without money, trade would require
barter
,the exchange of one good or service for another.
Every transaction would require a
doublecoincidence of wants
 –the unlikely occurrencethat two people each have a good the otherwants.
Most people would have to spend time searchingfor others to trade with –a huge waste of resources.
This searching is unnecessary with
money
,the set of assets that people regularly use to buyg&s from other people.

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