Discussion 1- 1 Key Points Discussion 2.

1 Key Points
scarcity the basic economic problem GDP
, components of

limited in supply and in demand

Expenditure Pov
-

+0mi Prod
Economic system : in
allocating scarce resources
'

y =
Firms Households Government Foreign Purchases
-

scarcity neonates choices ; choices must be made on Y =

I C G EI✓
how to allocate resources efficiently .
Net
Exports cnx)

3 Basic Economic Questions

Real GDP and Nominal GDP
$91 real growth
Nominal GDP
who will get them what will be produced w/ them
Apples / QQ PI
, ,
✗
( nominal
=

1000¥Gppz °" "

#Ég%?,% .tk?-8Yuain7.iYyear/
and who will receive the finished product :
noo prices
GDP
=

/
.

, ①
Qz

→
----'µ
'
-

models ,
graph ,
mathematics , Formula P =
0.50 Pz =
0.55
,

a,
✓
I

.
Increase does not always equals
'
The circular Ftow Model of a Market Economy '
to productivity , sometimes it may
P, Pz
the Just because of price increase or
Households : Land , Labor ,
capital are three scarce resources
p
more quantities are produced
it contains
.

Resource market :
exchange resources
from households .

Quantity =
1200/0.55
Firms :
they Qa
=
2182
✗

P, =
0.50

www.tneesiadthemcwases?knY-?Fjjgg , g wa ,
t
-
it
Real
prices were held constant
GDP (actual increase]

µ ,m , Resource market touch olds

Year ji GDP in year 1
prices
0
L
1¥
these " °"
buy
they
Produce
resources
to
d their Land GDP

}
services Deflator
-

goods a' %resources -

Labor scarce

f-
man profit Max
% Real GDP,
Heart Yearby
-
.
.

resources
utilities capital
-

seu geis for more

-

than the cost in Happiness

'

→ 110
""
"" ^ 100 →

ii.
""

:÷¥¥÷
-

÷ Ñ¥§
e-
_=①? .
.
Nomination
Real Gppz
= II
100
Nominal -

÷ ,
✗ Real

. ..
..
"Ñ& I
to measured in
and genius ""& Real GDP
=

their way
9-
year 1$
GDP -2
Deflator
Year 1
prices
( over 100 ] p
Base year
?
GNH -
economic development
=
happiness
1
Inflation
-

T price inflation
wants q' needs
-

f monetary supply might also lead to price inflation

faint community +
Religion Happiness
-

shock ( oil gas f)

-

supply
zooa 4th Dragon King give up his sovereignty good
-

a little is
-

2008 -

first voted Inflation is measured with :

with Values
Development CPI -
urban consumer Cu )

Basey current

150 ( 1-50%7
→
60% apples 100

if rice supply is enough anaÉ 18011-80%2

>
,

is it good if we just consume 0.6×1001-0.4×100=100

→
0.6×1501-0.4×180=16211-62%7
it put to ourselves instead

of exporting fromforeign
countries or
importing rice
us? What do you
from
?
prefer
 Macroeconomics deals with the Expansion at fiscal policy
-

increase expenditure decrease taxes

economy 's aggregates
- ,

services ) contractionany fiscal policy

-

decrease expenditure increase taxes

Inflation ( increase of goods ei , unemployment ,
,

economic General appropriation act

-

determine the budget of each

growth and development money supply
department DBCC together with the Office of the Pres
'

AD AS .

AD
.

p As =

Aggregate supply

Gross National Product (GWP) -

R -
- -
- - -
- -
•

# -

f •

I
- -
-

± l
Po
?
- - - - -
-

,
, per capita GNP =
GNP / Total Population
I ' '
As
1
←
,
→
,
AD
'
-
erroneous but a good measurement in terms of measuring the GDP
As , AD
,
'
i ,
and estimates how much a
person earns

Yz Yo Y Y -

Output =
GDP Limitations OF GNP
,
=

-
GNP 100 ; Population 10 -

wrong because Of improper allocation

Inflation
-
A price level of resources to the society .

Demt push
-
GNP Accounting are understated because many small businesses are not

registered in the market .

I t .
The evils of economic development were not included

increase in demand supply problem : decrease in supply

For goods and services
it cost of production increases and the y
Yn×M_,
=
at It G +

budget didn't increase Need tumaas ng Y output

=

bus firm can't shoulder the cost

price .

o =
consumption =
Co t a YD -
MPC -

marginal propensity to consume

(f) b disposable
Yp =
Y -
T 1- TR
income income taxes transfers
GDP summation
of all the goods produced within amount OF
-

Net income .
Gross income

Y= Ct It G t Nx money to consume
a specific period of time .

Y t Investment t Government Expenditure 1- Exports a) t Imports cm )

consumption
=

Buying @ 7111 ej Government spend

-

Residential
-

{
-

( road construction )
Nonresidential
1) Find (a) the reduced form and (b) the numerical value of Y
investment
( firms ) y
=
Otl a) Y :
Ct 1

Laissez Faire 0 co tbyd Y cot bYd t Io

policy
=
let alone
-
=

creates its own demand Ya Y T Y Co t b CY T) t Io

Jay 's law supply
-
- - -
=

I =
Io
'

YÑbY -
BT t IO

Where : 00=100 YFBYTY ) =

co bt + to
countries
-

Absolute scarcity scarcity in both

-

b =
0-06
fbt 1) =
Co -

b Tt Io
Relevant scarcity -

one good is scarce in one country , Io -_

¢0

Y,=G%
"
abundant in the other . 1- =
so

µ..,..*
"
11-0067
=%?¥
tirm§]→ieotion
Macroeconomic circular model reduced form
,

Government Export
=100g;yt4°_

]
expenditure
Investment
Expenditure
""

payments consumption BGovernments Ab✓ad☐

( salaries )
/ / import 0.94

g Net
Net
taxes
expenditure -156.38J
Éifndrawa
>
saving
House
☒ "

spread Lending Rate

= -

money money
④ →
☒ →
☒ saving 's rate
customer
profit
-

financial deficit spread 10%

= -

surplus
raving intermmediay upending =

8I profit OF the bank

-

unit unit
bank
depository
←¥¥
mower
-

interest
?⃝
?⃝
2) y Ct I t Gt X M
-

to =
cot byd Y =
Ct I t G t ✗ -

Yd =
Y -

T = Cot bYd t Io ti y t Got Xotxy -

Mot
my
T Totty co t b (Y T ] t to
tiy t Got Xot xx Not my
-

=
-
=

1- =
Iot iy
=
cot by -
BT t
Io ti y t Got Xo txy -

Mot my

G Go =
cot by b ( Totty ) Io t iy 1- Got ✗ O t
Xy Mot
t
my
= - -

✗ = Xo
txy =
cot by -

b To t
bty t Io t iy
+ GO t Xo t ✗y
-

Mo t
my
M
=
Mo my
-

C- by -1 bty iy - -

Xy -

my 1- Y) =
co -

bio t Io t Go t Xo -

Mo

Y l -

b 1- bt -
i -

X -
m + 1)

YYIIFIE.is#.mm-=co-bTotIotGotxo-moCl-btbT -
i -

X
-

m )

÷÷÷÷÷
*

I0 I0 I0
X
Gross Domestic Product market value of all final goods Ei services produced within a country in a
given period
-

All goods measured in same unit .

Things that don't have a market value are excluded .

-
it excludes illicit goods and items consumed and produced at home .

it includes
tangible goods and intangible services
-

it includes currently produced goods

by citizen
measures value production whether done its own
-

of ,
or

foreigners located here .

per year or quarter 13 months ]

Final goods -

are consumed by the end user ( only included]

Intermediate goods used in the production of other goods

-

Consumption (c) Investment 117

Household spending Goods that will be used to produce

'
For renters ,
includes rental payments .
-
Business capital
'
For homeowners ,
includes the imputed
-
Residential capital
rental value of the house but not Inventory
'

, accumulations

purchase price 1
mortgage payments
Not included
purchases of new housing
'
:

Nominal GDP has no base year

Real GDP needs base year
TYPES OF INFLATION
Monetary policy Monetary bank or BSP in Philippines
-

the circulation
contraction any monetary policy decrease money in
-

Expansionary monetary policy

Hyperinflation -

inflation at extremely high rates ( 1000 ,

1M percent a year]

must then
to
stop this ,
we
stop producing money apply contraction any

Galloping Inflation -

at a rate of 50 Or 100 or 200 percent annually .

Moderatein Elation inflation at a price level increases

-

Deflation the general level of prices

fall
-

a in

GDP Deflator measures the average price of all GNP

-

( N°pIa;%%☐ )
GDP Deflator =

✗ 100

Inflation
(GDPDq=lator2-GDPDq=1at0r#
=

✗ too
GDP Deflator I

X=_

F-
Inflation
consumer 's Price Index measures the average price of goods consumed by urban wage earners
-

compute the
purchasing power of worker 's
peso
-

1. Bureau of labor statistics ( BLS ) conducts survey to find out what includes the typical consumer 's basket

2. Find the prices of all goods in the basket

3.
compute total cost

4. Choose base
a year

cpi-wstot-basketinulrrenty.ee# ✗ 100%
Cost of basket in base year

5.
Compute the inflation rate
Inflation Rate =CPlnew_CPl01d_ ✗ 100
CPI old

solution :

A. 5×10=50 Volution :
beep
5×20=1-00chicken A. 2006 Household Basket
\ 150 9 ✗5 =
45

CPI =

✗ 100% 6×25=151
195

B. 9×10=90 CPI
✗
10oz
CP1=125@ 2005

6×20--11
19,30-150-+1002
B. Rate of increase =

210 CPI = 175 2006

Inflation Rate = =
302
✗ 100%
125 40%
Inflation rate from previous problem
=

lcpllnt.la/-ion--401--/-

Problems with the CPI

1. substitution Bias CPI misses this substitution because it uses a fixed basket of goods
-

2. Introduction Of New Goods

3. Unmeasured Quality Change Improvements in quality increases the value of goods quality is hard to measure
-

These problems increases the CPI and overstates inflation by about 52 every year .

Contrasting the CPI and GDP Deflator comparing Dollar Figures From Different Times

Imported consumer goods Amount in

=
Amount in
✗
Pñcetweltoday
included in CPI 1- do , ,a , Price level in
year 1-
today 's dollars
.

year
excluded in GDP Deflator $ 7.78 1 15 X
21€
.
= .

Capital Goods 31-3

-
excluded from CPI

-
included in GDP deflator ( domestically produced]
Use this technique to convert a time series of current dollar
-

the Basket ( nominal ) figures into constant

-

dollar (real ] figures .

i
CPI uses fixed basket

.
GDP deflator uses basket of currently produced goods -

1986-87 :$ 1,414 ( 1986 CPI =

109.67 =
1,414 11203£
( matter if different prices are changing ) -

2006-07 : $5,834 (2006401--203-8) 109.6

=
2,629.32

Tuition are much lower in 1986

fee .
Indexation
-

a dollar is indexed for inflation if it is automatically corrected for inflation by law or in contract .

Real and Nominal Interest Rates

Nominal

interest that are not connected for inflation

growth rate in the dollar value of a deposit or debt

-

Real

corrected for inflation

-

( nominal interest rate ) -

( inflation rate )

I o
Fo #
PRODUCTION Ei GROWTH

Economics prosperity varies substantially around the world

measured by GDP per person .

Growth rates of real GDP also varies ,

the relative

positions of countries can change dramatically

overtime .

standard of living depends the

on
economy 's
ability to produce outputs .

Productivity depends on the physical capital ,

human capital ,
natural resources ,
and

technological knowledge available to workers .

Government the 's

policies can
influence economy
growth rate :

encourage savings Ei investment

•
investment from abroad
'

foster education

promote good health

'

political stability
-

free trade
'

'
research and development of new technologies .

Diminishing returns the capital economy has

-

more an ,

the less additional output the economy gets from

'

an

extra unit of capital This makes countries

.

poorer
grow faster because of catch up effect
-

EFFECT OF POPULATION GROWTH

1- Rapid population growth may lower productivity

by stretching the supply and reducing the amount
of capital available .

2. A larger population may enhance technological

there are scientist and
process because more

engineers .
EMPLOYMENT

underemployed

prefer to be
time
workers who highly skilled but working in low skill
jobs and part time workers who would full
-

are
-
.

Unemployed
total lack OF work at given point in time People who want work and are able take suitable but can't find them
-

a .
to jobs .

Over employment

those who work long hours in jobs which provide very low earnings
-

soft employment
"
rights
"
less descent employment those which provides security of tenure, social security benefits and very limited
-

or no no

canteen workers

Not in the Labor Force

includes students homemakers and retirees

full time
-
.

Labor Force =

employed t unemployed
Labor Force rate Labor Force / Adult 100%
=

Population ✗

Bureau of Labor and statistics ( BLS ) measures unemployment rate They conduct survey and categorize adult population
-
.

those who are 16 years old and above .

Unemployment rate decreases means businesses are doing well

TYPES OF UNEMPLOYMENT Market power of unions when unions push the wages in unionized industries
-

Frictional Unemployment above the equilibrium level , they create a surplus Of labor .

Temporary dislocation
-

Theory of efficiency firms find it

profitable to
pay wages above
-

wages
-

Resign to work in another Firm

equilibrium level .

High wages improves worker 's life

-

Out
of work because OF unavoidable sickness
-

structural unemployment classical unemployment

New tech dislocates the workers to be out work
-

of -

refers to keeping the minimum above equilibrium wage .

Job mismatch Natural rate of unemployment

-

cyclical unemployment -

normal rate , the sum of total frictional and structural

Product of business cycle unemployment
-

Rod berths
'
Cure
Unemployment Rate É
( Employed t unemployed ) Increase labor share in national income
-

Establish a normal working day

H3.o%?%, Average production for wage

=
value
-

Prices should be fixed

-

=
7.642 Rent ! Price of labor cost
product
-
=

Price of raw material price OF product

=

REASONS WHY UNEMPLOYMENT EXIST

Minimum wage has a
flaw because it
underpays overqualified workers
-

Discourage workers
Minimum wage law is different population ; city all relies
based on in
people
-

people who do not want to work

-

on work while in province people has their own land / livestock which helps
people who gave up looking for a job
-
,

Frictional unemployment
reduce their cost of living ( self-sufficiency )
.

the time it takes workers to search for a job .

Minimum laws
wage
-

the wage of unskilled and inexperienced workers ,

-

raising
this law increase the quantity of labor supplied and

reduce the quantity demanded .

Karl Rod berths

Theory of crisis
-

-
Decrease in purchasing power
'
Decrease in consumption

-
Paradox Of Thrift it majority of the people saves more
-

money than it can less

consuming , cause production for
firms and decrease profit which will result in unemployment
Law Of Decreasing
MONEY Ei FINANCIAL SYSTEM

Financial Market

capital Market ( Long term)

-
-

money market ( short term )

-
-

stock Market stook share Of ownership

-

YOU can sell it whenever you need money

voting power
-

dividends : stook and cash dividend

two types Of share

1. common share
-

more voting rights ,

less dividends ( Mara Ming besesmakakaboto peso less important ? )

Preferred voting rights ( they can't vote in affairs rarely lang maka boto)
2. share more dividends less
company's
-
-

, ,

Y④ IID
BNl⑨ p m> Mr
wmpar①
Fee depends on the stock you purchase

Arbitrage opportunity
-

happens back when we have two stock exchange buying of , stock in one ✓ took exchange market in a

lower price then selling it in a higher price to the other market .

Blue chip stocks huge and successful companies ; good to invest to but the stocks high
-

are .

Bond certificate of indebtedness

-

Government -

treasury bills (short)

treasury bonds ( long]

treasury notes

Corporation commercial papers Cohort) 27019 months

-

corporate bonds ( long]

To increase the money or income they have or
for expansionary purposes

Mutual funds investment company that collects money from the public then the manager will allocate the funds to different
-

securities to avoid risk .

( long term )
-

You need to wait several years to get the benefits they promised you .

Divini tied investment -

investing in different securities

Liquidity Butter
-

You don't put your whole money in stocks , if the stock market

plummeted you'll still have the money to start over again .

Y Ct l t G t ✗ M
Open
-

economy
:
Loanable Funds Market

Closed Y =
c t l t G real int
economy
: .

rate
I y c G
- -
-
.

I =
I depositors
r
9
- - -
-

✓ LF
- - -
=

Private savings =
Y -
C T -

HD DLF =
borrowers
I →
Dirt

public savings
=
G -
T D budget vurp 1W (
t) sit .

; the

budget deficit C- ) Q Of loanable

Q .

Funds
?⃝
Money medium of exchange
-

Nominal money

value in terms of money itself

Real money

value of money accounts for inflation

after a week . the price level increased at 10¥

1%1,002 90,909.0%
=

Functions of money

medium of exchange
'

most important job

unit of account
-

measures goods ei services

-

common denominator
-
standard deterred payment
'

borrowing a lending easier

-

'
store of value
-

financial asset that can be used to

store wealth .

Kinds of money
•

commodity money l gold standard )

Fiat no intñasis value

money managed Pap currency
' - -
 '

AGGREGATE 9 SUPPLY DEMAND

Economic threats are unpredictable ( Pandemic )

Recession
negative quarters of GDP and GNP
-

Two

Classical Economic Theory

-

Nominal variable doesn't affect real variable

money ripply and Price level

output q
'

employment
-

Accurate for the long-run but not the short run

-

AS / AD Model

basic macroeconomic tool for studying output fluctuations

-

and determination the level and the inflation

the of price
rate .

AD
AS
P
Aggregate supply
← ID
for each given price level its the quantity of
R
- ,
- - - -
-
•
1-
po • equilibrium
willing
- - - -

- -
→ I
1
As
=
AD
output firms are to supply -

pz
-

I
1
I →
1
I - Overall supply
1 ←
I ,
1
I
upward sloping : firms willing to
supply
-
i are
Yz Yo Yi Y
at higher prices -

Note :
If AD increases , both Y and P

increases
Aggregate Demand
.

'
Note It AD shifts to the left it level in
output
:
combination of price level 9
-

decreases and both X and P declines which

'
.

goods q money markets are

simultaneously
in the equilibrium
higher prices reduces money supply which reduces
-

demand output
for

AD AS
p
it
Reasons why changes :

← →
-

political
Pz - - -
-
•

1-
po Economic
- -
- -

1- •
P +
- -

,
←
1
I I -

Endemic / Pandemic
→ ,
1 I
1 1
,
1

12 Yo Yi
Y

Note :
It AS turns left ,
it increases .

Price increases .
output decreases .

If As turns right ,
it decreases .

Price decreases Output increases . .

AGGREGATE DEMAND

Poni ble why it shifts :

'
AD AD Maroni
p
Policy measures
-

up

monetary policy ( Bank Ei interest rate)

R
)
- -
- - -

fiscal policy ( Expenditures

-

government related
-

Po - - - -
-
- ! ,

1
Changes → G. T ,
Money supply
I -
Consumer ed investor confidence ( why is it downward sloping )
1 level raises
Wealth effect price the value
of money holdings
Y
Yo and stimulates consumers
'

spending
it depends on the real
-

money supply interest rate effect lower

price level reduces the quantity of money
-
value of money policed by the household demand

central bank banking system .

Exchange rate effect reduction of interest rate ,

dollar depreciation or

in
E- nominal money supply appreciation the market .
It stimulates the NX .

P price level
=
Y =
Ct It Gt X -

4M → fr & I 4 AD T T T
Interest
r wealth exchange
4 -M→ H t I BAD WD C. Y P rate effect
,

effect
rate effect
P
investment saving curve ( is )
p
Downward sloping because there is an

inverse relationship between interest rate Ei

investment .

Ex When
.
r
drops , many will invest . This means that many
people will borrow

just to invest
- money .

Investment

Why is it downward sloping ? KEYNESIAN AGGREGATE DEMAND

will result P Initial taeilibriwm (E)

'
level of M
'
in a
given , higher prices AD AD

the value As AD
money supply
=
in low real or
of
=L AD
dollars / pesos is low will also result in low AD .
E IF the policies increases ,

Po • • A,
9ms
I
'

,
4G lot
'
Quantity theory of Money 1 A new equilibrium will
correspond on
1 :
w/ This will also
money MV =
PY Output
Y, Y
a higher output .

I 1 YO
velocity price increase employment .

Velocity
-
no .

Of times an average = Nominal GDP ( PY) Keynesian

peso is change hand in a total money spent in a AD

policy
year
-

year .
-

Keynesian supply curve

money
-

money supply provided by the CB classical

-
AD Policy
Let alone policy
-

NO government interference in the market

when Great Depression happened they realized that this set up

-

is wrong .

-
Classical supply curve

As schedule is vertical at full employment level of output .

This means that not all resources are utilized .

P As
Pi - - - - -
-
• E
" AJ=AD_ IF firms hire more

)
/ LEWD Prime
workers , wit of production
Po • E • E also increase they need
- -
- - - - -

HAD -

FP to increase price to
→
'
not in output AD keep up -

AD
y
y
 side economics As as a major driver of economy
supply
-

supply side policies encourage growth in the potential output

-

AD AD As
p
supply ride policy encourage growth in the potential output ( increase supply]
-

Policy 1 Remove unnecessary regulation

]
Pi -
- - -
-
.

Po -
- -
-

• ' ' t tax =

b income work gov't
Easier for business to open q create supply
I 1
of govt
.

expenditll
Policy
'

Maintaining efficient legal system

'
11 .
§
I 1
AD
minimize
1 ! Policy 111
Technological progress income
.

on

Yo 4 deficit
Yp Y
I 1
actual potential Politicians use side economics by wilting taxes it will increase As enough
supply
-

output output
that tax collection will increase
actually
p AD AD Potential output rather than fall .

*
It tax decreases AD will increases because will
, more
people
E
"
demand with their disposable income .

•
R
your taxes ]
•
-

•
-

incentives to senior citizen will cut

-

( Ex Giving
- -
-
-

E cutting taxes is incentive .

* YOU
actual should not decrease tax (G income) and increase spending
output

Yo
Demand side will increase the supply cohort
-

hen]
Meanwhile , the policies has permanent effect .

AD
p AJ
,o Also Ado Ago
sticky wage Theory
'

Py Po •
-

when wage increases ,

employment 9 labor reduces
=
-

É? = =•
-
•
•
ooAD sticky price theory
w,
nigh selling price
90
AD -

unexpected price fall , firms hill have sales reduction ei will cut off their production
80AD

HAD
Misperceptions Theory
Yo Y -
When suppliers see the price fall producers ,
will stop their production assevmming that their
product will have

'
a lower telling price
AJ
AD
p AS

P, - - -
- -
-
•
¢
1- • + Dts =
top
Po
-
- - - -

- - - - -
- -

l• ,
pz
1
! I
141
AJ 1
1 I
1 I 1
,

Yikyo Y
9095100
MONETARY POLICY Ei THE CENTRAL BANK

Money Reserve Requirement

M1 currency + Demand Deposits Banks reserve percentage of the money you deposited
-
=
a

m2
=
MI t
savings and Time Deposits will go to the BVP vault and can't be used .

M3 M2 +
Deposit substitutes This is done to prepare if customer suddenly pull out
=
a
-
-

Rediscount Rate

Nominal VJ . Real Money Supply

Nominal value is value in terms money itself
Real value is MIP

Monetary Policy
Expansionary contractionany

to RR 4 RR
Characteristics Of Money Reserve requirement

to Red B- & Red rate

1. Durability Rediscount rate
.

tell
2. Portability Open Market Operations Buy

be broken down ) t to
3. Divisibility ( can moral suasion
'
As
4. Hard to counterfeit p
AD AD

EMP
g. Must be generally accepted by a population Ap
" →

I
6. Valuable ( holds value overtime ) P F- -

•
- - -
,

• I
po
- -
- - -
-

-
- -
so 1 1 →
pz
-

I 1
91 AD
'
Functions Of Money I 1 ←
cop ,
I 1 I
Medium Of Exchange
Yz Yo Y, Y

store Of Value Fiscal Policy

'

spending a taxing government

-

power of
EFP CFP

to tax 4 spending ttax tr spending

4 Income
Unit Of Account
t
gov't expenditures

Phillips curve

inflation a unemployment
'

standard of Deterred Payment

-

negative relationship between

After stagnation happened :

K Unemployment t inflation AUGMENTED PHILLIPS CURVE

8 4 t
unemployment inflation
t income FAD

9 consumption
Why 4 output
Central Bank reorganized ?
* price level Cinflation )
the capital flights removed their investments in the pH during
( short-run ) ( long -

run )
Manos regime .
to avoid capital outflow , they released CDUI

to partially organize payment . Central Bank was

bankrupt
prompting them to make R A. 7653
.
-
the new central bank .
DISCUSSION 6 .
1

Monetary policy government's way of controlling money supply

-

Federal Reserve system ( 1913 ) Central Bank

control inflation ei encourage full employment

Functions : checks
1 .

Clearing
supplying actual
2.
currency
3. setups rules for other bank

4. Lends other banks and control interest rate

money to
Lower rate < More banks will borrow < More in circulation
money
Bank reserve requirement -
amount Of money a bank can hold

hiwaeay pa to ✓a
mga deposited money

Philips Wwe
high inflation
inflation
L# low
unemployment
A- -
long

Fun " •
short
employ
recessing
-

-
*
✓ RPC
low inflation
•

51
Unemployment
.