15 Thursday March 6 2014 Topic 8 Money Liquidity Sometimes money is called the

15 thursday march 6 2014 topic 8 money liquidity

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Thursday, March 6, 2014 Topic 8: Money Liquidity Sometimes money is called the most liquid asset. Consider for every asset following characteristic: How much less would you expect to get for the asset if you had to sell it now as opposed to trying to sell it over, say, the course of a year? 16
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Thursday, March 6, 2014 Topic 8: Money Fiat Money Advantage of Gold vs. Fiat money. You can’t print it. (Can’t control the quantity) (Zimbabwe. Weimar Germany.) Disadvantage of Gold vs. Fiat money. You can’t print it. (this is not a typo.) 17
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Thursday, March 6, 2014 Topic 8: Money Fiat Money Examples: New world gold discovery. Financial Panics. 18
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Thursday, March 6, 2014 Topic 8: Money Liquidity House: Not liquid. If you have to sell it today, expect to lose a ton. Financial Assets: very liquid. Convert to money quickly at very little cost. How liquid something in depends on lots of things. How easy it is to value. Common vs. idiosyncratic value. 19
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Thursday, March 6, 2014 Topic 8: Money Money Demand What determines how much money people wish to hold? Money substitutes: Credit cards. Debit cards. Nominal interest rate: Why? What is cost of holding money? 20
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Thursday, March 6, 2014 Topic 8: Money Money Demand You have $1 in pocket. Consider two actions. 1) Hold it in your pocket. 2)Lend it to someone. (assume riskless rate i. Why?) 1) Hold: $1. 2) Lend: $1 (1+ i) So cost per dollar of holding in pocket is i per year. 21
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Thursday, March 6, 2014 Topic 8: Money Money Demand When riskless i near zero (like now), cost of holding money near zero, so people and firms tend to hold a lot of it. When riskless i higher, people see what they can do to hold less of it. 22
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Thursday, March 6, 2014 Topic 8: Money Money Supply Gold: Whatever there is. Fiat: Whatever the entity in charge says it is. In U.S., that entity is the Federal Reserve . (full disclosure: I am an advisor to the Federal Reserve Bank of Minneapolis). 23
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Thursday, March 6, 2014 Topic 8: Money Money Supply Federal Reserve is technically a government created, heavily regulated, heavily taxed, private bank. Huh? Why? Printing dollar bills very lucrative. A $100 bill costs practically nothing to print, but sells for $100. 24
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Thursday, March 6, 2014 Topic 8: Money Money Supply To avoid Zimbabwe, good idea to separate who profits from money creation, and who makes the decision regarding money creation. In our system, Fed system decides, but doesn’t get to keep the profits. The U.S. federal government gets the profits (which are called “seignorage revenues”.) 25
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Tuesday, March 11, 2014 Topic 9: Fiscal Policy Big Controversy Economists actually agree on a whole lot of things. Macroeconomic policy is not one of them. Lots of controversies over what to do about business cycles (recessions and booms). One of the bigger controversies is over countercyclical fiscal policy — trying to temper or “flatten” the business cycle through government spending.
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