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The Market for Money
Jill StudentJack DeskoccupierDan Intheclouds
Joanie Willgraduatesoon
Austrian EconomicsMay Term 2015
Professor Hal SnarrWestminster College
i
3.5
2.5
500 550 M
MD
The Market for Money
2300
– The lower the nominal interest rate, the lower the opportunity cost of holding money, the greater is the quantity of real money demanded.
Money Demand
2.5
i
1900 550 M
MD
The Market for Money
– The lower the nominal interest rate, the lower the opportunity cost of holding money, the greater is the quantity of real money demanded.
– M rises by 5% if PL rises by 5%– real GDP– Financial technology: ATM, debit cards, interest checking
Money Demand
2.5
i
– The lower the nominal interest rate, the lower the opportunity cost of holding money, the greater is the quantity of real money demanded.
– M rises by 5% if PL rises by 5%– real GDP– Financial technology: ATM, debit cards, interest checking
credit cards
1900 550 M
MD
The Market for Money
Money Demand
The Fed buys $100 million worth of First National’s Treasury bonds and the reserve requirement ratio is 10%
The Market for Money
Money Supply
The Market for Money
The Fed buys $100 million worth of First National’s Treasury bonds and the reserve requirement ratio is 10%
RD 10
Money Supply
The Market for Money
The Fed buys $100 million worth of First National’s Treasury bonds and the reserve requirement ratio is 10%
D
Money Supply
R 1/rrrsimple money
multiplier
Money Supply‒ It is the relationship between the quantity of money supplied and i.‒ On any given day, the quantity of money is fixed independent of the interest rate.
3.5
i
500 2300 M
2.5
The Market for Money
MS
Money Supply‒ It is the relationship between the quantity of money supplied and i.‒ On any given day, the quantity of money is fixed independent of the interest rate.‒ Increased bank lending raises MS and lowers the interest rate (see previous slide)
i
500 2300 M
The Market for Money
MD
3.0
MS
3.5
Money Supply‒ It is the relationship between the quantity of money supplied and i.‒ On any given day, the quantity of money is fixed independent of the interest rate.‒ Increased bank lending raises MS and lowers the interest rate‒ Expansionary monetary policy raise MS and lowers interest rates (see future slide)
i
500 2300 M
The Market for Money
MD
2.5
MS
3.0
3.5
