ECON 10/23 - Policies

Current Events:
- Fed to increase interest rate on bank reserves (gives them to increase reserves and make more interest, not loan funds)

Four Principles:
- The supply of money is the dominant influence on nominal income
- Short run, money supply can influence real factors and is primarily responsible for business cycles
- The private sector is inherently unstable

- A lot of moving around assets but not assets to money changes which keeps the money supply stable

Monetarist Position:
- Steep LM curve
- Investment demand is relatively stable (I0)
- Flat IS curve
- Shifts in LM are important, IS isn't too important

Fiscal Policy:
- Can be successful if financed by money creation
- Increase in money supply because of gov't deficit will increase the economy
- Borrowing from the public (loanable funds market) will just drive interest rates up and investment down

"There is a saying that the best if often an enemy of the good."

Velocity of Money:
- Tends to dip down (sometimes below average) during recessions