Chapter 4: Money Market Analysis Gang Gong March 10. 2002 Copyright Notes: This electronic file is only used as a lecture notes for the student in this class It is not allowed to be used for presentation anywhere else without the permission from the author
Chapter 4: Money Market Analysis Gang Gong March 10, 2002 Copyright Notes:This electronic file is only used as a lecture notes for the student in this class. It is not allowed to be used for presentation anywhere else without the permission from the author
Introduction The objective of this chapter is to study how money and interest rate is determined in the money and financial market The money and financial market is the market in which money and various financial assets(such as, bonds and stocks) are exchanged
Introduction • The objective of this chapter is to study how money and interest rate is determined in the money and financial market. • The money and financial market is the market in which money and various financial assets (such as, bonds and stocks) are exchanged
Introduction The Functions of Money Medium of Exchange Store of value Unit of account
Introduction • The Functions of Money – Medium of Exchange – Store of Value – Unit of Account
Introduction Types of Money in Modern Economy with Banking System M1: Currency and Notes(issued by central bank), also called high powered money or monetary base checkable deposit M2: Non-checkable saving deposit etc M3: Large time deposit Note: MI is the most liquid money followed by m2 and M3
Introduction • Types of Money in Modern Economy with Banking System: – M1: • Currency and Notes (issued by central bank), also called high powered money or monetary base. • checkable deposit. – M2: Non-checkable saving deposit etc. – M3: Large time deposit Note: M1 is the most liquid money followed by M2 and M3
The Demand for Money Transaction Demand for Money Money is an medium of transaction. The transaction demand for money is those money that is hold for transactionary purpose. It is assumed to be related to nominal gdp
The Demand for Money • Transaction Demand for Money: — Money is an medium of transaction. The transaction demand for money is those money that is hold for transactionary purpose. It is assumed to be related to nominal GDP