Econ+310+Winter+2010+Topic+1

Econ+310+Winter+2010+Topic+1 - Economics 310 Money &...

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Economics 310 University of Michigan Winter 2010 Topic 1
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2 Lecture 1 General Information Instructor: Chad Hogan Office: Lorch M109 Office phone: (734) 936 2745 Cell phone: (734) 358 1590 Email: chadh@umich.edu Office Hours: Mon, Wed: Noon – 2:00pm Tues, Thurs: 11:00am – 2:00pm or by arrangement
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3 Lecture 1 Assessment Exam 1 (25%) Wednesday, February 10 th , in class Exam 2 (25%) Wednesday, March 24 th , in class Final Exam (40%) Wednesday, April 28 th , 8:00 am - 10:00 am Assignments (10%) A series of assignments due through the term Submitted through the CTools site
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4 Lecture 1 Course Materials Text: Mishkin, F., The Economics of Money, Banking and Financial Markets , 9 th ed., Addison Wesley, 2009 Everything else you need will be available on CTools site Syllabus Readings Assignment questions Answer keys Practice exams Lecture slides
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5 Lecture 1 Topic 1: What is money? Reading: Chapter 3 of text 4 papers available on CTools Radford, “The Economic Organization of POW Camps” Bryant, “Island Money” Sweeney & Sweeney, “Monetary Theory and the Great Capitol Hill Baby Sitting Co-op Crisis” Rockoff, “The Wizard of Oz as a Monetary Allegory”
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6 Lecture 1 Definition of money Anything that is widely acceptable as payment for goods and services and as repayment of debt . Appreciate the distinction between money and: Wealth Income
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7 Lecture 1 What does money do? We typically identify three major roles for money 1. Store of Value 2. Unit of Account 3. Medium of Exchange Understand these roles by considering an economy without any form of money
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8 Lecture 1 The Moneyless Economy I Suppose we have four goods traded Apples (A), bananas (B), coconuts (C) and dates (D) Six exchange rates are required A for B A for C A for D B for C B for D C for D More efficient to have a numeraire, and to quote only three prices E.g. Let the date be the numeraire P D = 1 Quote P A , P B and P C as the number of dates that may be exchanged for one apple, banana and coconut respectively
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9 Lecture 1 Money as a Unit of Account In an economy with money, money is a natural numeraire All prices are quoted in units of money i.e. money is the unit of account By providing a unit of account, money enhances efficiency of trade Reduces costs of information gathering and transacting Note: possible to have a unit of account without having money
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10 Lecture 1 The Moneyless Economy II Transactions involve the transfer of ownership of resources Ownership of resources is more valuable if timing of consumption can be chosen Timing of consumption is difficult if resources are not easily storable E.g. Suppose Ben and Jerry’s paid all their employees in ice cream Storage (i.e. deferral of consumption) imposes a real cost on transaction Expect inefficiently few transactions to take place
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11 Lecture 1 Money as a Store of Value In an economy with money, money can be used as
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Econ+310+Winter+2010+Topic+1 - Economics 310 Money &...

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