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MONEY

MONEY. MONETARY AGGREGATES. M0 – base money ( cash + deposits of the banks with the central bank) M1 – money , narrow money ( cash + demand deposits ) M2 – broad money (M1 + other deposits in domestic currency )

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MONEY

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  1. MONEY

  2. MONETARY AGGREGATES M0 – base money (cash + depositsofthebankswiththe central bank) M1 – money, narrowmoney (cash + demanddeposits) M2 – broadmoney (M1 + otherdeposits in domesticcurrency) M3 – liabilitiesofthebanks (M2 + deposits in foreignexchange) M0 = G(cash) + RR(requiredreserves) + ER (nonrequiredreserves) M1 = G(cash) + DD (demanddeposits)

  3. TRANSACTION DEMAND Flowsofincomesandflowsofexpenditures M = P * Y / v m = Y / v = k * Y 1000 1000 1000 A 500 C 250 B 3 2 1

  4. CENTRAL BANKTHE FUNCTIONS OF THE CENTRAL BANK (1) Adjustingsupply to demand - theamountofmoney in circulation: Open market operations (salesandpurchasesofforeignexchange, governmentbonds, issuingownbonds) Credits to banks Reserverequirements Interestratedetermination (2) Carefortheliquidityofthebankingsystem: Determinationofreserverequirementsrate Determinationoftheratiosbetweenassetsandliabilities (3) Carefor general liquidityofthecountry: Foreignexchangereserves (4) Otherfunctions:controlofthebankingsystem, datacollection, issuing notes, etc.

  5. MONETARY POLICY M1/M0=(G+DD)/(G+RR+ER) Ifwedefine g=G/DD, r=RR/DD and e=ER/DD anddivideby DD weget M1/M0 = (1+g)/(g+r+e) moneymultiplier g –ratiobetweencashanddemanddeposits r – requiredreservesratio e – voluntaryreservesratio M1 = (1+g)/(g+r+e)*M0

  6. MONETARY EQUILIBRIUM MONEY AND INTEREST RATE S S S D i i i D D Quantity of money in circulation Expansive policy Increase of demand Decrease of demand

  7. MONETARY AGGREGATES IN EURO ZONE

  8. MONEY MULTIPLIER

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