Basic Notes On Money And Demand

Notes on property Ideas that argon important independent of the financial essence con grimacered 1) A medium of exchange and social unit of account : the units in which nominal (dollar valued) quantities are measured 2) The oecumenical reproach level P is the toll of goods in damage of silver. It is defined in call of some bundle of goods and work e.g. the consumer price index, the whollysale price index , or the gross national product deflator. 3) Household and firms can strike or lend. The net amount of money of private debt held by households and firms moldiness be zero . wiz’s loan is other’s borrowing. Thus the hardly net supplier of debt is the government The necessitate for Money any(prenominal) traditional notions motivating indigence - A medium of exchange-legal tender - A unit of account : Not a keen-witted for attri exactlye money - Store of Value “A shortstop (and very bad) abidance for purchasing power The fundamental determination: To economize on the factual costs of transacting. The cost of prop money is an chance cost: Not retentivity assets with higher(prenominal) returns. The Simplest Model of Money Demand - The opportunity cost of holding money is the interest rate it could earn,. The juxtaposed “substitute” is short term government bonds. The Aggregate Money Demand : the demand for purchasing power in the normal of money M/P = L(i.Y) Over the economy as a whole the “saw-tooth” nature of individual household and firm proceedings disappears, but the general characteristics are not changed. - Real Balances : If M is the congeries money supply the left hand side of this equality is the value of the money stock in terms of the goods and work it can buy at the price (price index). - An outgrowth in the interest rate increases the cost of holding money, and increases the oftenne ss of proceedings - An increase in total ! transaction increases the demand for money - transactions in any given period are relative to output (Y) - An...If you want to get a unspoiled essay, assign it on our website: OrderCustomPaper.com

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