Topic 5 full notes

Topic 5 full notes - 7-1Money is the assets that are widely...

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Unformatted text preview: 7-1Money is the assets that are widely used and accepted as payment.Money is a medium of exchange, unit of account, and a store of value.The official ways to measure money are known as monetary aggregates, such as M1, M2, and etc.7-2Asset MarketAssume:oAll assets can be grouped into two categoriesoMonetary AssetsoNon-Monetary Assets7-3Supply of and Demand for Money:M1oCurrency outside banksoi.e. currency held by the non-bank publicoChartered bank demand deposits7-4M2oM1 plus personal savings deposits and non-personal notice deposits7-5Supply of MoneyoAssume that the money supply (M) is exogenous7-6Demand for MoneyoAmount of money wealth holders want to hold in their portfolios7-7Opportunity Cost of Holding MoneyoEquals:oNominal interest rate on bonds (i)oMinusoNominal interest rate on money (im)7-83 Relationships Regarding MdoMd varies oInversely with ioDirectly with general price level (P)oDirectly with real national income (Y)7-9Can be summarized by the following equation:+ + -oMd=P*L (Y, i)7-10Demand for Money in Real Terms: + -oM d =L (Y, i)P 7-11...
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This note was uploaded on 07/12/2010 for the course ECON 202 taught by Professor Angelatrimarchi during the Spring '10 term at Waterloo.

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Topic 5 full notes - 7-1Money is the assets that are widely...

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