Economics HL
Economics HL
4
Chapters
117
Notes
Unit 1 - Intro To Econ & Core Concepts
Unit 1 - Intro To Econ & Core Concepts
Unit 2 - Microeconomics
Unit 2 - Microeconomics
Unit 3 - Macroeconomics
Unit 3 - Macroeconomics
Unlocking National Income Stats: What They Reveal About Economies
GNI vs. GDP: Which Better Measures Economic Well-Being?
Understanding Aggregate Demand Beyond GDP
Understanding Aggregate Supply Monetarist Vs. Keynesian Views
Understanding Equilibrium Monetarist Vs Keynesian Models Explained
Understanding Macroeconomic Equilibrium: A Deep Dive
Economic Growth Blessing or Curse for Living Standards
Understanding Unemployment Myths, Measurements, and Meaning
Deflation Demystified: Why Lower Prices Aren't Always Better!
Understanding Inflation Insights & Implications For Economies
Understanding Equality Vs. Equity In Income Distribution
Understanding Economic Inequality Income vs. Wealth
Unveiling Income Inequality The Power of Lorenz Curve & Gini Coefficient
Understanding 2018's Lorenz Curve Income Quintile Insights
Understanding Poverty Absolute Vs. Relative Explained
Understanding Poverty Beyond Just Income Measures
Understanding Globalization, Technology, and Income Inequality Impact
Understanding Taxes From Direct To VAT Explained!
Understanding Tax Rates ATR vs MTR Explained
Unlocking Equity: How Taxation Curbs Income Inequalities
Strategies To Combat Poverty Beyond Traditional Taxation
Unraveling Money From Basics To Banking & Policy Mechanics
Understanding The Demand For Money: A Deep Dive
Central Bank's Tools Steering Money Supply & Interest Rates
Impact of Contractionary Monetary Policy on Aggregate Demand
Monetary Policy Key Strengths and Limitations Explained
Mastering Fiscal Policy How Government Spending Influences Economy
Unlocking The Power Of The Keynesian Multiplier
Unveiling Fiscal Policy: Key Advantages & Notable Disadvantages
Unlocking Economic Growth: The Power of Supply-Side Policies
Boosting Growth: The Power of Supply-Side Policies
Unveiling Supply-Side Policies: Market-Based Vs. Interventionist Insights
Unlocking Macroeconomic Objectives: Tools & Tactics for Policymakers
Mastering Price Stability: Fiscal vs. Monetary Policies
Effective Policies To Counter Different Types Of Unemployment
Macroeconomic Dilemma: Unemployment Vs. Inflation
Unit 4 - The Global Economy
Unit 4 - The Global Economy
IB Resources
Unit 3 - Macroeconomics
Economics HL
Economics HL

Unit 3 - Macroeconomics

Understanding The Demand For Money: A Deep Dive

Word Count Emoji
522 words
Reading Time Emoji
3 mins read
Updated at Emoji
Last edited on 5th Nov 2024

Table of content

The supply of money 🏦

Controlled by the Central Bank

  • Central banks change the money supply by messing with bank reserves.
  • For simplicity's sake, let's say the central bank solely determines the money supply.

 How Interest Rates Are Determined by the Central Bank 🎯

  • The central bank sets the money supply to achieve an equilibrium interest rate.
  • Too much demand for money? Interest rates go up!
  • Too much supply? Interest rates go down!

The demand for money 💵

 What Is the Demand for Money?

  • Think of demand for money like wanting to keep a giant pile of cash in your basement instead of investing it.
  • If you had $100 million, you could keep it as cash (earning no interest) or buy a government bond (earning interest).

 Why Demand Money? 🤔

  • Transactions motive: You need money to buy stuff like groceries (can't pay with government bonds!).
  • More money is needed for transactions if the country's income (nominal income) or average price level goes up.

The Trade-Off Between Convenience and Earnings

  • Keeping money in a demand deposit is super convenient but earns no interest.
  • Sammy, for example, might miss out on interest by keeping his funds in a demand deposit instead of a bond.

 How Interest Rates Affect Money Demand 📉

  • Higher interest rates = less demand for money (because you'd rather earn interest!)
  • Demand for money is negatively sloped against interest rates.
  • If nominal income (money GDP) increases, demand for money shifts to the right

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IB Resources
Unit 3 - Macroeconomics
Economics HL
Economics HL

Unit 3 - Macroeconomics

Understanding The Demand For Money: A Deep Dive

Word Count Emoji
522 words
Reading Time Emoji
3 mins read
Updated at Emoji
Last edited on 5th Nov 2024

Table of content

The supply of money 🏦

Controlled by the Central Bank

  • Central banks change the money supply by messing with bank reserves.
  • For simplicity's sake, let's say the central bank solely determines the money supply.

 How Interest Rates Are Determined by the Central Bank 🎯

  • The central bank sets the money supply to achieve an equilibrium interest rate.
  • Too much demand for money? Interest rates go up!
  • Too much supply? Interest rates go down!

The demand for money 💵

 What Is the Demand for Money?

  • Think of demand for money like wanting to keep a giant pile of cash in your basement instead of investing it.
  • If you had $100 million, you could keep it as cash (earning no interest) or buy a government bond (earning interest).

 Why Demand Money? 🤔

  • Transactions motive: You need money to buy stuff like groceries (can't pay with government bonds!).
  • More money is needed for transactions if the country's income (nominal income) or average price level goes up.

The Trade-Off Between Convenience and Earnings

  • Keeping money in a demand deposit is super convenient but earns no interest.
  • Sammy, for example, might miss out on interest by keeping his funds in a demand deposit instead of a bond.

 How Interest Rates Affect Money Demand 📉

  • Higher interest rates = less demand for money (because you'd rather earn interest!)
  • Demand for money is negatively sloped against interest rates.
  • If nominal income (money GDP) increases, demand for money shifts to the right

Unlock the Full Content! File Is Locked Emoji

Dive deeper and gain exclusive access to premium files of Economics HL. Subscribe now and get closer to that 45 🌟

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