CH 15 Flashcards
Monye are three things: ???
A medium of exchange
A unit of account or measure of value
A store of value that is easily liquidated
Money supply is ?
The total amount of currency and checking deposits of firms and households
The central bank controls
the money supply
Explain the reosning behind the demand for money.
The demand for money is primarily based on expected rate of return and liquidity. Money does not accumulate intreste so given the chans people are more likely to invest instead of having money. If the intreste rate appreciate then the demand for money depreciate and vice versa.
Money are mostly a medium of exchange and by needing to do more transactions then the demand for money will appreciate.
Aggregate money demand is?
the total amount of demand for money by all households and firms in the economy
What are the three factors that deterine the aggregate money demand?
Intreste rate, price level, and real national income
If R appreciate
M depreciate
R ?
Intreste rate
If P appreciate
M appreciate
If Y appreciate
M appreciate
M (demand) = ?
P x L(R,Y)
By equalibirum in the money market this equation holds true
M (supply) / P = L (R, Y)
Real money supply
M (supply) / P
If M(s) increases then, how does the schedule in the money market change
Real money supply shifts right
Money market consists of
intreste rate, GNP (Y), aggregate real money demand
Aggregate real money demand ?
L (R, Y)
Y appreciates then…?
L (R, Y) shifts right and R appreciate
Y depreciates then…?
L (R, Y) shifts left and R depreciate
An increase in a countrys money supply causes its currency to…?
depreciate in the forex market
An decrease in a countrys money supply causes its currency to…?
appreciate in the forex market
What happens in with the price level in the short and long run?
In the short run the price level stay fixed while in the long run it varies
By combining the forex and money market we can see …?
How the money market impacts the forex market and changes the exchange rate
Y ?
Output
Money marekt, long run equalibrium price level
P = M (s) / L (R, Y)
P = M (s) / L (R, Y)
Money marekt, long run equalibrium price level
If M (s) increases what happens to the price level and aggregate money demand?
The price level increase with about the same amount as the M (s), while L (R, Y) remain the same
An premenant increase in the Money supply leads to …?
a proportional long run depreciation of the currency.
Inflation
Price level appreciate
Delaftion
Price level depreciate
M ?
The nominal money supply
National income ?
Y
Real money demand ?
L
“Real money axis”
measures the amount of real money supplied and demanded
The L curve measures?
The amount of real money demanded
What is on the measured on the vertical axis in the money marekt diagram?
Rates of return axis, which shows the interste rate line based on where the demand and supply of the money market align.
P ?
Price level aka. what the thing costs
