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ch7notes - Money and Asset Markets Money assets that are...

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Money and Asset Markets Money: assets that are widely used and accepted as payments. M1: Currency Travelers' Checks Demand Deposits Other Checkable Deposits M2: Components of M1 Savings Deposits, including MMDA's Small-denomination Time Deposits Money Market Mutual Funds Money Supply: Influenced by Central Bank Money Demand: Portfolio Allocation Problem Money All other Assets
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Factors Affecting Money Demand Prices: Required $'s Proportional to Cost Real Income Interest Rates: Relative Returns Money: i m 2245 0 Other Assets: i = r + π e Wealth Relative Risk Liquidity of Other Assets Payment Technologies Money Demand Function: Nominal Demand: M d = P × L(Y, r + π e ) Measured in $’s. Real Demand: ) r , Y ( L P M e d π + = Measured in Units of Purchasing Power.
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Money Market Equilibrium Individual Wealth Constraint: d i d i $ i nm m Wealth + = Economywide Wealth Constraint: d d $ NM M Wealth + = Supply of Wealth: NM M Wealth $ + = Identity: NM NM M M d d - = - Equilibrium: ) r , Y ( L M P e π + =
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ch7notes - Money and Asset Markets Money assets that are...

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