货币银行 Chapter 2 英文原版教材课件.ppt

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1、Copyright 2009 Pearson Addison-Wesley.All rights reserved.Chapter 2The Role of Money in the MacroeconomyLearning ObjectivesUnderstand the role of money in an economyComprehend the different measurements of money used in the United StatesSee how the money supply drives inflation and economic expansio

2、n2IntroductionRecurrent themeWhat is the proper amount of money for the economy?Sir William Petty(162387)wrote in 1651“To which I say that there is a certain measure and proportion of money requisite to drive the trade of a nation,more or less than which would prejudice the sameToo much money will l

3、ead to inflationToo little money will result in an inefficient economy3Introducing MoneyUses of MoneyMedium of exchangemeans of paymentA store of wealthretains its value over timeStandard of valueunit of account used to compare prices and relative valuesLiquid AssetSomething that can be turned into

4、a generally acceptable medium of exchange,without loss of valueLiquidity is a continuum from very liquid to illiquidCurrency and checking accounts are most liquid assets4Primary Definition of Money(M1)Currency outside banks plus checking accounts(demand deposits)Currency held by banks is not part of

5、 money supplyChecking accounts are not legal tender,but commonly accepted as paymentOther definitions of money(M2)start with M1 and add progressively less liquid financial assetsRefer to following page for basic composition of the money supply(M1 and M2)Most economists prefer the narrow definition o

6、f money supply(M1)since it is generally acceptable as a means of payment5Composition of the Money SupplyM1Currency outside banksCheckable deposits(demand deposits)M2Small-denomination time deposits(CDs)Money market depositsSavings depositsRetail money market mutual funds6Who Determines Our Money Sup

7、ply?Gold does not determine the money supplythis link was abolished in 1968Central Bank(Federal Reserve System)Fed does not deal directly with the public(bankers bank)and is responsible for execution of national monetary policyCreated by Congress in 1913Twelve district Federal Reserve Banks scattere

8、d throughout the countryBoard of Governors located in Washington,D.C.7Who Determines Our Money Supply?(Cont.)Fed influences the total money supply,but not the fraction of money between currency and demand deposits which is determined by public preferences Fed implements monetary policy by altering t

9、he money supply and influencing bank behavior8The Importance of Money:Money Versus BarterBarterdirect exchange of goods/services for other goods/servicesVery inefficient and limited economyNo medium of exchange or unit of accountRequires double coincidence of wants“I have something you want and you

10、have something I wantItems must have approximate equal valueNeed to determine the“exchange rate between different goods/services9The Importance of Money:Money Versus Barter(Cont.)MoneyAny commodity accepted as medium of exchange can be used as money(commodity money)Certainty of exchangeFrees people

11、from need to barterMakes exchange more efficientPermits specialization of laborsell ones labor to the market in exchange for money to purchase goods/services10The Importance of Money:Money Versus Barter(Cont.)Money(Cont.)Prices,expressed in money terms,permit comparison of values between different g

12、oodsMust retain its valuethe value of money varies inversely with the price level(inflation)Rely on the Fed to control the supply of money to preserve the value of moneyIf money breaks down as a store of value(hyperinflation),economy resorts to barter11The Importance of MoneyFinancial Institutions a

13、nd MarketsFor an economy to grow,it must forgo present consumption(save)and invest in new capital assetsMoney contributes to economic development and growth by stimulating savings and investingMoney separates the act of saving from investing12The Importance of MoneyFinancial Institutions and Markets

14、(Cont.)Savers receive interest payments and investors expect to earn a return over the cost of borrowingFinancial institutions and markets act as intermediaries between savers and borrowers13Money,The Economy,and InflationMoney has value because people believe it will be accepted as a means of payme

15、nt,as a store of value,and as a standard of valueBank Reserves and the Money SupplyDemand deposits(money)are created when banks extend loans through the issuance of creditBanks are required by the Fed to hold reserves in the form of vault cash or on deposit with the Fed against checking account liab

16、ilities(demand deposits).Current the reserve requirement is approximately 10%of demand deposits14Money,The Economy,and Inflation(Cont.)Bank Reserves and the Money Supply(Cont.)Banks create money by making loans with excess reserves,those above the Feds required level of reservesThrough manipulation

17、of excess reserves,Fed influences the federal funds rate(rate banks charge for overnight loans),bank lending,and,therefore creation of money15Money,The Economy,and Inflation(Cont.)How Large Should the Money Supply Be?Purchase goods/services economy can produce,at current pricesGenerate level of spen

18、ding on Gross Domestic Product(GDP)that produces high employment and stable pricesMonetary Policy is used as a countercyclical toolvary the money supply to influence economic activity16Money,The Economy,and Inflation(Cont.)Increases in money supply alters publics liquidity and influences spending th

19、rough portfolio adjustmentDirect Impactexcess liquidity is spent on goods/servicesIndirect Impactpurchase financial assets which lowers interest rates which stimulates business investment and consumer spendingHowever,changes in liquidity may alter demand for money and not influence GDPpeople hoard t

20、he additional moneyPublics reaction to changes in liquidity is not consistent,so Fed cannot always judge impact of a change in money supply17Money,The Economy,and Inflation(Cont.)Velocity:The missing LinkWhen the Fed increases the money supply,recipients of this additional liquidity probably will sp

21、end some on GDPHowever,it is possible the public will choose to hold onto the additional liquidity(hoarding of money)Over time there will be a multiple increase in spending18Money,The Economy,and Inflation(Cont.)Velocity:The missing Link(Cont.)Velocity of moneyM x V=GDP,where M is money supply and V

22、 represents velocityThe number of times the money supply turns over in a period of time to support spending on outputTechnically,velocity is determined by dividing the cumulative increase in GDP by the initial increase in the money supplyThe Fed has no control over the velocity of money since this i

23、s dependent on behavior of the publicUltimately,the Fed needs to be concerned whether the additional spending which results from increased money supply will result in higher production or higher prices19Money,The Economy,and Inflation(Cont.)Money and InflationInflationPersistent rise of pricesHyperi

24、nflationPrices rising at a fast and furious paceDeflationFalling prices,usually during severe recessions or depressionsInflation reduces the real purchasing power of the currencycan buy fewer goods/services with the same nominal amount of money20Money,The Economy,and Inflation(Cont.)Economists gener

25、ally agree that,in the long-run,inflation is a monetary phenomenoncan occur only with a persistent increase in money supplyIncrease in money supply is a necessary condition for persistent inflation,but it is probably not a sufficient conditionCase 1Economy in a recession.Expanding money supply may l

26、ead to more employment and higher outputCase 2Economy near full employment/output.Expanding money supply can lead to higher output/employment,but also higher pricesCase 3Economy producing at maximum.Expanding money supply will most likely lead to increasing inflation.21TABLE 2.1 Two Definitions of the Money Supply(February 14,2021)22