# Ch4.3 Ch4_summary(uploaded on Sept 26) - REVIEW REVIEW CH.4...

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Unformatted text preview: REVIEW REVIEW CH.4 FINANCIAL MARKETS 78 The Organization of the Course The Organization of the Course The Core The Short Run The Medium Run The Goods Market Ch.3 The Labor Market Ch.6 The Phillips Curve Ch.8 Financial Market Ch Ch.4 The AS-AD Model Ch.7 Okun’s Law Ch.9 The IS-LM Model IS Ch. 5 79 Framework Framework What is Money? ◦ Money serves three functions: 1) medium of serves three functions: 1) medium of exchange; 2) a unit of account; and 3) a store of value store of value. Deriving the Demand for Money ◦ Md=\$YL(i) 80 Framework Framework Money Demand, Money Supply and the Equilibrium Interest Rate Equilibrium Interest Rate ◦ Ms=M ◦ In equilibrium, Ms =Md ◦ That is, M=\$YL(i) Changes in the Equilibrium Interest Rate ◦ Shifts in Ms or Md in or 81 Framework Framework The Determination of Equilibrium Interest Rate (Including Checkable Deposits) Rate (Including Checkable Deposits) ◦ Supply of central bank money=Demand for central bank money In equilibrium, Hs =Hd That is, H=[c+ө(1-c)]\$YL(i) 82 Framework Framework ◦ The Relationship between Monetary Base and Money Supply Supp M= 1 H [c + θ(1 - c)] ◦ Changes in Monetary Base and Money Supply ∆H=∆CUd+∆Rd ∆M=∆CUd+∆Dd 83 Typo: Typo: P.65 4.7 Change of Money Supply Money supply=1/[c + θ(1-c)]H It states that the money supply is a multiple of the monetary base. The relationship of the money supply to the monetary base depends on the currency-money ratio chosen by the th public and the reserve-deposit ratio chosen by banks. To change the money supply, the central bank must change the amount of monetary base or change the money multiplier. 84 ...
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Ch4.3 Ch4_summary(uploaded on Sept 26) - REVIEW REVIEW CH.4...

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