Samenvatting

Summary of the midterm chapters

0 keer verkocht

Vak
ECB3MTP

Instelling
Universiteit Utrecht (UU)

Summary of chapters 14 - 20, 24 - 26 of the book F.S. Mishkin, The Economics of Money, Banking, and Financial Markets, 13 th global edition, 2022, Pearson

[Meer zien]

Voorbeeld 2 van de 12 pagina's

Bekijk voorbeeld

Geupload op 5 maart 2023
Aantal pagina's 12
Geschreven in 2022/2023
Type Samenvatting

summary including all important points

€7,49

In winkelwagen

Opslaan

100% tevredenheidsgarantie
Direct beschikbaar na je betaling
Lees online óf als PDF
Geen vaste maandelijkse kosten

Monetary Theory & Policy:

Chapter 20:

The quantitiy theory of money: explains how the nominal value of the national income is
developed -> suggest that interest rates have no effect on the demand of money.

Velocity of money: V = PxY/M = price level x aggregrate output (income) / money supply

Equation of exchange = M x V = P x Y

 Tells us that the quantity of money x velocity of money gives us the nominal GDP.

Short run: We assume that the velocity of money (V) is constant in the short run

We can use the short run assumption to calculate the money demand:

Step 1: divide both sides by V -> M = 1/V x PY k = 1/V
Step 2: if the money market is in equilibrium -> M = Md
Step 3: Md = k x PY

 We now see that the money demand is not affected by interest rates and since k is a
constant the level of transactions is generated by a fixed level op PY (nominal GDP)

Short run: We also assume that the aggregrate output (Y) is constant in the short run since in
normal times the output produced would remain at the full – employment level.

Since now V and Y are both assumed to be a constant, we can come up with a formula that
gives us the price level:

P = M x V(constant) / Y(constant)

 This tells us that only changes in the quantity of money lead to proportional changes
in the price level.

Inflation = Pi = %∆M - %∆Y (works in the long run but not in the short run)

Two ways can pay for its budget deficits:
1. Raise revenue by raising taxes
2. Borrow by issuing government bonds
3. Print money

Budget constraint: DEF (budget deficit) = G – T = ∆MB + ∆B

MB = monetary base (how much money in the economy)
B = Government bonds

, Keynesian Theories of Money Demand

Liquidity preference theory: Why do individuals hold money:
Three motives:

1. Transactions motive: people hold money to wait for innovations
2. Precautionary motive: people hold money just in case
3. Speculative motive: keeping money as a store of wealth

Liquidity preference function:

V = PY/M = Y/f(I,Y) where i = interest rate

This is a contradiction to the theory of quantity of money

Stability of money demand:

V = PY/M = Y/f(I,Y)

 The more sensitive the demand for money is to i, the more unstable is V
 Instability of money demand function and the predictability of V
 Monetary policy: targeting interest rates or money supply -> by looking at the stability
of demand central banks know whether to target the interest rates or the money
supply.

Chapter 24:

Aggregrate demand: Y = C + I + G + NX
Short run aggregrate supply: pi = pi (expected) + a(Yactual – Ypotential) + p(inflation shocks)
Long run aggregrate supply: Yp

Three types of shocks:
1. Aggregrate demand shock
2. Permanent supply shock
3. Temporary supply shock

Response of Monetary policy to shocks:
- Price stability (minimize inflation)
- Economic stability (minimize the output gap)

 Central bank has two options: (aggregate demand shock)
1. No policy response (let the economy recover itself)
2. Policy response (stabilizing output and inflation in the short run by changing the
interest rates

Dit zijn jouw voordelen als je samenvattingen koopt bij Stuvia:

Bewezen kwaliteit door reviews

Studenten hebben al meer dan 850.000 samenvattingen beoordeeld. Zo weet jij zeker dat je de beste keuze maakt!

In een paar klikken geregeld

Geen gedoe — betaal gewoon eenmalig met iDeal, creditcard of je Stuvia-tegoed en je bent klaar. Geen abonnement nodig.

Direct to-the-point

Studenten maken samenvattingen voor studenten. Dat betekent: actuele inhoud waar jij écht wat aan hebt. Geen overbodige details!

Veelgestelde vragen

Wat krijg ik als ik dit document koop?

Je krijgt een PDF, die direct beschikbaar is na je aankoop. Het gekochte document is altijd, overal en oneindig toegankelijk via je profiel.

Tevredenheidsgarantie: hoe werkt dat?

Onze tevredenheidsgarantie zorgt ervoor dat je altijd een studiedocument vindt dat goed bij je past. Je vult een formulier in en onze klantenservice regelt de rest.