Keynesians believe that interest rates are determined by the supply and demand for money, while Neoclassical economists think that the interest rate is the result of the interaction of supply and demand for loanable funds. Today we will study the Keynesian view on this matter, called the theory of liquidity preference. You should have read the text chapter identified below in the homework section and watched the related videos. We will start class today with you working cooperatively with a partner to find a solution to the "Problem of the Day" and then there will be a lecture on our next topic. This page contains all the information you need for today's class: homework, the problem of the day, helpful resources (videos, podcasts, etc.) and an explanation of the activities we will do in class. Use the table of contents on the right to help you navigate.
Read Mankiw (Chapter 34 - "How Monetary Policy Influences Aggregate Demand" section) and watch the following video.
Problem of the Day
List three costs of inflation and explain how each is harmful to economic stakeholders.
Lecture
Related Readings