SUPPLY
MONETARY POLICY ACCORDING TO KEYNES
| FED | |
MONEY | |
MONEY | |
INTEREST | |
BUSINESS | |
AGGREGATE |
SUPPLY |
DEMAND | RATEs | INVESTMENT | DEMAND |
LIQUIDITY PREFERENCE THEORY |
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(Demand for Money) |
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|
||||
|
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Interest Rate Effects |
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High |
|
More Bonds | ||
More Money |
 |
Low |
||
KEYNESIAN DEMAND FOR MONEY |
||
MotiveS |
ReasonS |
Determined by |
TRANSACTION - |
TAKING CARE OF BUSINESS |
- INCOME |
PRECAUTION - |
RAINY DAY INSURANCE |
- INCOME |
SPECULATION - |
LOW RISK ASSET |
- INTEREST RATE |
DEMAND FOR MONEY
BOND PRICES AND INTEREST RATES
STRONG BOND
MARKET |
 |
WEAK BOND
MARKET |
||||
PRICE |
coupon |
YIELD |
PRICE |
coupon |
YIELD |
|
$100 |
$6 |
6.0% |
$100 |
$6 |
6.0% |
|
$110 |
$6 |
5.5% |
$90 |
$6 |
6.7% |
|
$120 |
$6 |
5.0% |
$80 |
$6 |
7.5% |
|
MONEY/Bond MARKET EQUILIBRIUM
AT R2 EXCESS SUPPLY OF MONEY A - B |
AT R0 EXCESS DEMAND FOR MONEY C - D |
|
EXCESS DEMAND FOR BONDS |
EXCESS SUPPLY OF BONDS |
|
STRONG BOND MARKET |
WEAK BOND MARKET |
|
BOND PRICES RISE |
BOND PRICES FALL |
|
INTEREST RATES FALL TO R1 |
INTEREST RATES RISE TO R1 |
|
DEMAND FOR BONDS FALLS |
DEMAND FOR BONDS RISES |
|
DEMAND FOR MONEY INCREASES A - E |
DEMAND FOR MONEY DECREASES D - E |
EASY & TIGHT MONEY
EASY MONEY AT R2 |
TIGHT MONEY AT R1 |
|
EXCESS SUPPLY OF MONEY A - B |
EXCESS DEMAND FOR MONEY C - D |
|
EXCESS DEMAND FOR BONDS |
EXCESS SUPPLY OF BONDS |
|
STRONG BOND MARKET |
WEAK BOND MARKET |
|
BOND PRICES RISE |
BOND PRICES FALL |
|
INTEREST RATES FALL TO R1 |
INTEREST RATES RISE TO R2 |
|
DEMAND FOR BONDS FALLS |
DEMAND FOR BONDS RISES |
|
DEMAND FOR MONEY INCREASES A - C |
DEMAND FOR MONEY DECREASES C -A |
MONETARY POLICY A-Z
Monetary Policy According to Keynes
Strange Case of the Extreme Keynesian Double Whammy
Monetary Policy & Interest Rates
Maestro
