Chapter Organization Introduction Money Defined: A Brief Review The Demand for Money by Individuals Aggregate Money Demand The Equilibrium Interest Rate The Interaction of Money Supply and Demand

Chapter Organization How the European Single Currency Evolved The Euro and Economic Policy in the Euro Zone The Theory of Optimum Currency Areas The Future of EMU Summary

The Case for Floating Exchange rates The Case Against Floating Exchange Rates Macroeconomic Interdependence Under a Floating rate What Has been Learned Since 1973? Are Fixed Exchange Rates Even and Option for mostCountries?

The Open Economy in the SR The Mundell-Fleming Model Model under floating ex-rate Model under fixed ex-rate Interest-rate- differentials Debate over floating v.s. fixed ex-rate Mundell-Fleming model with changing price level Model in large open economy

Topics 4 questions from before HW#1 Unemployment Natural rate of unemployment reasons for unemployment Frictional unemployment Wait unemployment Patterns of unemployment

Questions from Last Lecture Demand for money↑ =)=l ,Y) ↑ while fixed →l(r,y: hold& to balance the pressure ofd↑; hold,↑ to balance

The money market LM curve The theory of liquidity preference

How the sr and lr differ In the Lr, prices are flexible and can respond to changes in S or D. In the Sr many prices are stuck at some predetermined level In the sr, monetary policy does have a potent effect on output and employment

Goal Develop the Solow Growth Model How much of the economy's output should be consumed today and how much should be saved for the future? Static analysis(Ch. 3)> Dynamic

Definition Inflation The overall increase in prices Hyperinflation: extraordinary high inflation