{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Lesson 8--Money and the Economy

Lesson 8--Money and the Economy - Lesson 8 Money and the...

Info icon This preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon
Lesson 8: Money and the Economy Chapter 18--M&B   Section on Money-Growth Rules (p392-394)   Milton and Money Stock Control, William Poole (FRBSL July 30, 2007) http://www.stls.frb.org/news/speeches/2007/07_31_07.html
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Any Idea Why M1 surged in the fall of 2008?
Image of page 2
M2 surged in the aftermath of the Lehman bankruptcy— Why?
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Money Supply Growth and The Business Cycle
Image of page 4
Helicopter Ben…What is this about?
Image of page 5

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Money-Growth Rules Money-Growth Rules The first type of rule proposed by The first type of rule proposed by monetarists in 1960s was the monetarists in 1960s was the money-growth rule money-growth rule A A money growth rule money growth rule focuses only on focuses only on the growth rate of money in the long the growth rate of money in the long run, ignoring short-run fluctuations run, ignoring short-run fluctuations Example Example : money growth = 3% every : money growth = 3% every year year Such a rule is based on the equation Such a rule is based on the equation of exchange of exchange
Image of page 6
The Equation of Exchange The Equation of Exchange The The equation of exchange equation of exchange is based on is based on idea that the money in circulation idea that the money in circulation must be used a certain number of must be used a certain number of times to support a given amount of times to support a given amount of spending spending ×   ×   V = P  V = P  ×   ×   Y Y Velocity Velocity = number of times the = number of times the average dollar is spent on final goods average dollar is spent on final goods and services and services
Image of page 7

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Money-Growth Targets Money-Growth Targets % M M + % + V V = % = % P P + % + % Y Y = = π π + % + % Y Y Money growth + velocity growth = inflation rate + output growth Money growth + velocity growth = inflation rate + output growth Monetarists believe velocity is stable or at Monetarists believe velocity is stable or at least predictable least predictable % % Δ Δ M M = = π π T T + % + % Δ Δ Y*    Y*    % % Δ Δ V V e e π π T = inflation target = inflation target % % Δ Δ Y* =  Y* =  growth rate of potential output growth rate of potential output % % Δ Δ V V = expected growth rate of velocity = expected growth rate of velocity
Image of page 8
Instability of Money-Growth Rule Instability of Money-Growth Rule Financial innovations sometimes Financial innovations sometimes alter the relationship between money alter the relationship between money and other variables, such as the and other variables, such as the introduction of interest-bearing introduction of interest-bearing checking accounts checking accounts As a result, velocity has become As a result, velocity has become unstable in the 1980s and 1990s.
Image of page 9

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 10
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern