Economics
Basic Concepts

Deepshikha Chauhan ... Slideshare presentation on the Economics of Money

Burgess COMMENTARY

Peter Burgess

E co money Presentation Transcript 1. Demand for and supply of money 2. What is money?     Money is anything that is generally acceptable as a means of payment in the settlement of all transactions General acceptability – unique feature of money Money is what money does Purchasing power 3. Functions of money  Medium of exchange  Measure of value /unit of account  Standard of deferred payments  Store of value 4. Kinds of money   Fiat money (legal tender)  Coins  Currency notes Fiduciary (credit) money  Deposits  Bank deposits – Demand and time deposits  Post office deposits 5. Measures of money supply  M1 = C + DD + OD  M2 = M1 + savings deposits with post office savings banks  M3 (AMR) = M1+ net time deposits of banks  M4 = M3 + total deposits with post office savings organization 6. Quantity theory of money   Variations in quantity of money impacts prices, money and real income, rate of interest Two approaches    Quantity theory of money Keynesian theory Quantity theory   Irving Fisher’s transactions version Cambridge cash balances approach 7. Fisher’s QTM  M*V = P*T       M – stock of money – depends on monetary system V – velocity of circulation – average number of times a unit of money changes hands in a given period P – average price of market transactions T – physical volume of transactions Assuming V and T constant, direct relation between M and P Ms = Md 8. Cash balances approach  Marshall and Pigou Md = K P y  K – behavioural constant – ratio of money income people like to hold in the form of money – measured in time units – 0 1 mm is larger the smaller is r mm is larger the smaller is c