Real Estate Economics 156 Foldvary
Chapter 4 - Money & Credit
Money - medium of exchange, and final means of payment
Originally commodity-based - cattle, shells, salt, silver, gold.
Today, fiat. In US, issued by the Federal Reserve System. (P. 79).
Money includes demand deposits (bank accounts).
Real versus nominal interest rate.
An expansion of the money supply acts initially like increased savings,
lowering the interest rate.
This either increases output or shifts output from consumer to producer goods.
But then prices rise. Also, the structure of prices gets distorted.
There is too much investment in high-order slow-turnover capital goods.
Land values rise.
The FED reduces the money expansion. Interest rates rise.
Investment drops, a recession starts. (P. 85).
An increase in inflation hurts lenders and benefits borrowers.
Inflation increases price uncertainty.
With high inflation, there is a flight to tangibles, including real estate (e.g. 1970s).