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Money
 

Money

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Macro economics Money

Macro economics Money

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    Money Money Presentation Transcript

    •  
    • Definition
      • Conceptual Definition
      • Money can be defined as any commodity that is generally accepted as a medium of exchange and a measure of value.
      • Four Categories
      • The Conventional Approach
      • The Chicago Approach
      • The Gurley-Show Approach
      • The Central Bank Approach
    • Functions of Money
      • Money as a Medium of Exchange
      • Money as a Measure of Value
      • Money as a Store of Value
      • Money as a Standard of Deferred Payments
    • Kinds of Money
      • Metallic Coins
      • Paper Money
      • Private Bank money
    • Supply of Money
      • Sources of Money Supply
      • Measures of Money Supply
      • Theory of Money Supply
    • Sources of Money Supply
      • Central Bank & High Power Money
      • Measure
      • H=C+R+OD
      • Where,
      • C= Currency Held by public
      • R= Cash Reserves of Commercial banks
      • OD= Other Deposits with RBI
    • Sources of Money Supply
      • Money Creation by the Commercial Banks
      • Credit Money
        • Primary Deposits
        • Secondary Deposits or Derivative Deposits
    • Sources of Money Supply
      • Deposit Multiplier
      • A function that describes the amount of money created in a bank's money supply. This money is created by lending money that is in excess of its required reserve to borrowers.
      • dm= 1/r
      • dm= ∆TD/ ∆D
      • dm= ∆TD/ ∆TR
    • Sources of Money Supply
      • Credit Multiplier
      • Credit Multiplier can be defined as the ratio of additional credit creation to the total cash reserves.
      • Cm= ∆CC/ ∆R
      • Cm= ( ∆TD- ∆R)/ ∆R
      • Cm= (1-r)/r
    • Measures of Money Supply
      • Purpose of measuring Money Supply
      • To control and regulate in accordance with monetary requirement of the country.
      • Excess money supply lead to inflation and shortage lead to economic recession
    • Measures of Money Supply
      • Based on the medium of exchange and store of value functions of money, the RBI undertakes different measures of money supply.
      • They are M0, M1, M2, M3 and M4 from reserve, narrow to broader measures.
      • Among these measures of money supply, M0,M1 and M3 are the most important money supply measures.
    • Measures of Money Supply
      • M0(Reserve Money) = Currency in Circulation + Banker’s Deposit with RBI + Other Deposits with RBI.
      • M1(Narrow Money) = Currency with the public + Demand Deposits with Banks + Other Deposits with the RBI.
      • M2 = M1 + Time Liabilities of the Saving Deposits with the banks + Certificate of Deposits issued by Banks + Term Deposits with Banks.
      • M3(Broad Money) = Currency with the Public + Demand Deposits with Banks + Time deposits with Banks + Other Deposits with RBI.
      • Or M3 = M1 + Time Deposits with Banks.
      • M4 = M3 + Total Post Office Deposits.
    • The Theory of Money Supply
      • The theory of money supply makes a distinction between the two concepts of money supply
      • Ordinary Money or stock of money (M)
      • M = C + DD
      • High-Power Money (H)
      • H = C + R
    • The Theory of Money Supply
      • The Money Multiplier
      • Money Multiplier gives the relationship between reserve money or high-power money and ordinary money or broad money or money stock.
      • Money Multiplier approach says that money stock is determined by the money multiplier and reserve money.
      • Money Multiplier is the rate at which high-power money gets multiplied to make supply of total ordinary money.
    • The Theory of Money Supply
      • Money Multiplier (m)
      • M = mH
      • m = M/H
      • Money Multiplier with Demand Deposit (DD)
      • M = (cr+1)/(cr+rr) * H
      • m = (cr+1)/(cr+rr)
      • Money Multiplier with DD and TD
      • M = (1+cr)/(cr+rr(1+t)) * H
      • m = (1+cr)/(cr+rr(1+t))
    • Theory of Money and Price
      • The Classical Quantity Theory of Money
      • Fisher’s Quantity Theory of Money and Price Level.
        • (or) Quantity theory of exchange
        • MV = ∑ pQ
        • MV = PT
        • Expanded Equation,
        • MV + M’V’ = PT
    • Money Market Equilibrium
      • Relationship between the demand for real balances and the interest rate.
      R MD/P MS/P E Interest Rates Real Money Balances
    • Money Market Equilibrium R MD/P MS/P Interest Rates Real Money Balances R BS R’ A B R’ B A BD
    • Money Market Equilibrium
      • Changes in Equilibrium
        • Changes in the Nominal Money Supply
      R’ R MD/P MS/P E E’ Interest Rates Real Money Balances (MS/P)’
    • Money Market Equilibrium
      • Changes in Equilibrium
      • Changes in Real Income
      R’ R MD/P MS/P E E’ Interest Rates Real Money Balances (MD/P)’
    • Theory of Money and Interest
      • The Classical Theory of Interest
      R1 R2 Q1 Q2 I1 I2 E E’ S Interest Rates Savings and Investment O
    • Theory of Money and Interest
      • Keynes’s Criticism of Classical Theory of Interest
      R3 Interest Rates Savings and Investment R2 R1 R0 M N T L I1 I2 I3 S1 S2 A B C D O
    • The Keynesian Theory of Interest
    •  
    •