第3章.Money, Interest Rates, and Exchange Rates.pptVIP

Chapter Organization Introduction Money Defined: A Brief Review The Demand for Money by Individuals Aggregate Money Demand The Equilibrium Interest Rate: The Interaction of Money Supply and Demand Chapter Organization The Money Supply and the Exchange Rate in the Short Run Money, the Price Level, and the Exchange Rate in the Long Run Summary Introduction Factors that affect a country’s money supply or demand are among the most powerful determinants of its currency’s exchange rate against foreign currencies. This chapter combines the foreign-exchange market with the money market to determine the exchange rate in the short run. It analyzes the long-term effects of monetary changes on output prices and expected future exchange rates. §1Money Defined: A Brief Review 1.1Money as a Medium of Exchange A generally accepted means of payment 1.2Money as a Unit of Account A widely recognized measure of value 1.3Money as a Store of Value A transfer of purchasing power from the present into the future 1.4What Is Money? Assets widely used and accepted as a means of payment. Money is very liquid, but pays little or no return. All other assets are less liquid but pay higher return. Money Supply (Ms) Ms = Currency + Checkable Deposits 1.5How the Money Supply Is Determined An economy’s money supply is controlled by its central bank. The central bank: Directly regulates the amount of currency in existence Indirectly controls the amount of checking deposits issued by private banks §2 The Demand for Money by Individuals Three factors influence money demand: Expected return Risk Liquidity 2.1Expected Return The interest rate measures the opportunity cost of holding money rather than interest-bearing bonds. A rise in the interest rate raises the cost of holding money and causes money demand to fall. 2.2Risk Holding money is risky. An unexpected increase in the prices of goods and services could reduce the value of money in terms of the commodities consumed. Changes in the ris