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A Primer on Macroeconomics by Thomas Beveridge

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Chapter 7

The Financial Sector

Money Matters and Interest Rates

By the end of this chapter you will be able to:

1. Identify three functions that money performs in the economy.

2. Distinguish among barter, commodity money, and fiat (token) money.

3. Define two different measures of the U.S. money supply (M1 and M2).

4. Describe the process of money (deposit) creation. Define and explain the importance of the deposit multiplier.

5. Describe how equilibrium is achieved in the money market.

6. Identify three monetary policy tools and describe how they are changed to adjust the money supply in the pursuit of policy objectives.

7. Explain the impact of the interest sensitivity of money demand on the effectiveness of monetary policy.

8. Explain the ...

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