The Demand for Money Asset Demand for money Money is also an asset However, unlike the other assets, such as bonds, stocks, etc. money M1 does not generate interest rate(its only advantage is the liquid). Therefo it can be expected that when interest rate of other assets increase, the demand for money will decline
The Demand for Money Asset Demand for Money – Money is also an asset. However, unlike the other assets, such as bonds, stocks, etc., money (M1) does not generate interest rate (its only advantage is the liquid). Therefore it can be expected that when interest rate of other assets increase, the demand for money will decline
The Demand for Money The Total Demand for Money The total demand for money is the sum of transaction demand for money and asset demand for money. We thus can write the demand function for money as M=kHi (see Figure presented in class
The Demand for Money • The Total Demand for Money – The total demand for money is the sum of transaction demand for money and asset demand for money. We thus can write the demand function for money as (see Figure presented in class) M k Y hi d = −
The Supply of money and money Market Equilibrium The supply of money is often assumed to be controlled by the central bank, and therefore It Is exogenuous M=M
The Supply of Money and Money Market Equilibrium • The supply of money is often assumed to be controlled by the central bank, and therefore it is exogenuous: M M s =
The Supply of money and money Market Equilibrium The money market equilibrium is the condition at which ms=Md M=kY-hi Therefore, given the money supply and nominal gdp. it is the interest variation that ensures the money market equilibrium
The Supply of Money and Money Market Equilibrium • The Money Market Equilibrium is the condition at which Therefore, given the money supply and nominal GDP, it is the interest variation that ensures the money market equilibrium. M s M d = M = k Y − hi