lec05_01 - ECON 4721H Money and Banking Lecture 05_01...

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

View Full Document Right Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ECON 4721H Money and Banking Lecture 05_01 Satoshi Tanaka University of Minnesota October 24, 2011 Satoshi Tanaka ECON 4721H Money and Banking Lecture 05_01 Theory of Money I Money as a Medium of Exchange Satoshi Tanaka ECON 4721H Money and Banking Lecture 05_01 Today's Questions Why do people use money? Why do people value pieces of paper that cannot be consumed? Satoshi Tanaka ECON 4721H Money and Banking Lecture 05_01 Roles of Money 1 Medium of exchange (today's main focus) 2 Store of value (today's model has this property also) 3 Unit of account Satoshi Tanaka ECON 4721H Money and Banking Lecture 05_01 Simple Example: Medium of Exchange Assume three agents, each has di erent type of goods; A, B, C Assume no double coincedence of wants A wants B 's good, B wants C 's good, C wants A 's good Agent A Result: No trade in autarky Satoshi Tanaka ECON 4721H Money and Banking Lecture 05_01 Simple Example: Medium of Exchange 1 If I pass a piece of paper to agent A , and ... 2 If every agent believes that other will accept this piece of paper for the exchange of goods, then, the situation can be improved from the autarky. Agent A Satoshi Tanaka ECON 4721H Money and Banking Lecture 05_01 Overlapping Generations Model with Money 1 Equilibrium without Money 2 Equilibrium with Money Strategy here : Compare two equilibria, one with money and one without money. Which equilibrium gives better welfare outcome? Satoshi Tanaka ECON 4721H Money and Banking Lecture 05_01 Overlapping Generations Model The economy begins in period 1, continues forever. There are N initial old individuals at the begining of period 1. In each period t ≥ 1, N indivuduals are born. People live for two period, young period and old period , and then die. Each individual is endowed with y consumption good only in young period . The good is not storable . ( very important assumption ) Satoshi Tanaka ECON 4721H Money and Banking Lecture 05_01 Overlapping Generations Model Generation \ Period 1 2 3 4 5 6 0 (Initial Old) 1 y 2 y 3 y 4 y 5 ... .......
View Full Document

This note was uploaded on 02/07/2012 for the course ECON 4721H taught by Professor Tanaka during the Fall '11 term at Minnesota.

Page1 / 26

lec05_01 - ECON 4721H Money and Banking Lecture 05_01...

This preview shows document pages 1 - 10. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online