Money-Tutorial-Summaries.docx - Money Banking and Financial...

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Money, Banking and Financial Markets Theory Tutorial 1 Summary – Money is Memory The Influence of Lucas ‘72 The first article from Tutorial 1 is an interview piece with Neil Wallace, a kingpin in economic theory. He discusses how Lucas’s paper “Expectations and the Neutrality of Money”. Influenced his worked and bridged the gap between Microeconomics and Macroeconomics. He states that a key problem with economic models of his time was the fact that they were static (Keynes) and took into account only one date whereas he needed a model which was dynamic (OLG). Wallace also discusses with the interviewer the concept of ‘Money is Memory’. The basic idea around this is that fiat money basically acts as a record keeping device. It serves as a memory for our consumption. He references various Amish communities that work without currency and work on everyone helping each other. When someone doesn’t show up to help everyone remembers that and would must likely not help them. Fiat Money in theory and in Somalia This article continues the discussion about money being memory. It goes further saying that money is a liquid way of keeping track of commodities that may be illiquid or may need to be used instead of kept as a record keeping device. The article also references how communities work on gift giving but as they grow larger keeping track of contributions becomes harder. It also discusses how fiat money possesses its value, with the answer previously being that the value of money is supported by government decree. But a recent paper “Positively Valued Fiat Money after the Sovereign Disappears: The Case of Somalia” casts doubt of how strong the government mechanism is. The case in Somalia showed that the Somali shilling continued to circulate long after the government that issued that paper collapsed in 1991. Even with no central bank to back it up the Somali shilling has continued to maintain value and has floated against other currencies. Towards the end of the article it is mentioned that the reasonable amount of counterfeiting of the Somali shilling may even help keep the supply of shillings’ stable. Articles Referenced: “Expectations and the Neutrality of Money” “Positively Valued Fiat Money after the Sovereign Disappears: The Case of Somalia”
Tutorial 2 Summary – The Psychology of Monetary Policy Free Exchange: Sleight of Hand Monetary Policy plays a huge role in the economy but this articles tackles one specific way which is the psychology behind Monetary Policy. It has been observed in numerous examples, the Roosevelt example is talked about largely in this example, that merely the news of Monetary Policy changes can bring about change, before the policy is even implemented. In the 1930’s Franklin Roosevelt’s programme of expansion, which included a departure from the gold standard, helped being America out of depression. These changes occurred immediately on Roosevelt’s arrival before a majority of the policies had time to work.

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