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Money and Banking

Money and Banking. Chapter 13. Chapter 13 Table 13.1. Monetary Aggregates: M1, M2, & M3. Demand for Money. Transactions Demand Depends on Income (Y) Asset Demand Depends (Inversely) on Interest Rates (r) r is the opportunity cost of holding currency or a checking account balance

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Money and Banking

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  1. Money and Banking Chapter 13

  2. Chapter 13 Table 13.1 Monetary Aggregates: M1, M2, & M3

  3. Demand for Money • Transactions Demand • Depends on Income (Y) • Asset Demand • Depends (Inversely) on Interest Rates (r) • r is the opportunity cost of holding currency or a checking account balance • r is the interest you give up by holding money

  4. Chapter 13 Figure 13.1 Total Demand for Money

  5. The Money Market and the Interest Rate • Changes in the Supply of Money move the Money Market out of Equilibrium • When the Supply of Money (MS or SM) is increased • There is a surplus of money • People respond by buying bonds with the surplus money • The additional demand for bonds • Increases the price of bonds • Lowering the interest rate • Reestablishing equilibrium in the Money Market

  6. Chapter 13 Figure 13.2

  7. The Money Market and the Interest Rate: Decreasing the Money Supply • When the Supply of Money (MS or SM) is decreased • There is now a shortage of money • People respond by selling bonds to acquire more money • The additional supply of bonds • Lowers the price of bonds • Raising the interest rate • Reestablishing equilibrium in the Money Market

  8. Chapter 13 Figure 13.2

  9. Chapter 13 Figure 13.3 Structure of the Federal Reserve System

  10. Chapter 13 Figure 13.4 The 12 Federal Reserve Districts and Banks

  11. Chapter 13 Table 13.2 Kinds of Financial Institutions

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