Money Supply and Money Demand 货币供给与货币需求.ppt

Money Supply and Money Demand In this chapter, you will learn… how the banking system “creates” money three ways the Fed can control the money supply, and why the Fed can’t control it precisely Theories of money demand a portfolio theory a transactions theory: the Baumol-Tobin model Banks’ role in the money supply The money supply equals currency plus demand (checking account) deposits: M = C + D Since the money supply includes demand deposits, the banking system plays an important role. A few preliminaries Reserves (R ): the portion of deposits that banks have not lent. A bank’s liabilities include deposits, assets include reserves and outstanding loans. 100-percent-reserve banking: a system in which banks hold all deposits as reserves. Fractional-reserve banking: a system in which banks hold a fraction of their deposits as reserves. SCENARIO 1: No banks SCENARIO 2: 100-percent reserve banking SCENARIO 3: Fractional-reserve banking SCENARIO 3: Fractional-reserve banking SCENARIO 3: Fractional-reserve banking SCENARIO 3: Fractional-reserve banking Finding the total amount of money: Original deposit = $1000 + Firstbank lending = $ 800 + Secondbank lending = $ 640 + Thirdbank lending = $ 512 + other lending… Money creation in the banking system A model of the money supply Monetary base, B = C + R controlled by the central bank Reserve-deposit ratio, rr = R/D depends on regulations bank policies Currency-deposit ratio, cr = C/D depends on households’ preferences Solving for the money supply: The money multiplier If rr 1, then m 1 If monetary base changes by ?B, then ?M = m ? ?B m is the money multiplier, the increase in the money supply resulting from a one-dollar increase in the monetary base. Exercise Suppose households decide to hold more of their money as currency and less in the form of demand deposits. Determine impact on money supply. Explain the intuition for your result. Solution to exer