Beruflich Dokumente
Kultur Dokumente
Financial Markets
Prepared by:
Fernando Quijano and Yvonn Quijano
Macroeconomics, 3/e
Olivier Blanchard
4-1
Macroeconomics, 3/e
Olivier Blanchard
Semantic Traps:
Money, Income, and Wealth
Income is what you earn from working plus
what you receive in interest and dividends. It
is a flowthat is, it is expressed per unit of
time.
Saving is that part of after-tax income that is
not spent. It is also a flow.
Savings is sometimes used as a synonym for
wealth (a term we will not use in this course).
Macroeconomics, 3/e
Olivier Blanchard
Semantic Traps:
Money, Income, and Wealth
Your financial wealth, or simply wealth, is the value of
all your financial assets minus all your financial
liabilities. Wealth is a stock variablemeasured at a
given point in time.
Financial assets that can be used directly to buy goods
are called money. Money includes currency and
checkable deposits.
Investment is a term economists reserve for the
purchase of new capital goods, such as machines,
plants, or office buildings. The purchase of shares of
stock or other financial assets is financial investment.
2003 Prentice Hall Business Publishing
Macroeconomics, 3/e
Olivier Blanchard
M d $YL(i )
The demand for money:
increases in proportion to
Macroeconomics, 3/e
Olivier Blanchard
Macroeconomics, 3/e
Olivier Blanchard
4-2
The Determination of
the Interest Rate, I
Macroeconomics, 3/e
Olivier Blanchard
Macroeconomics, 3/e
Olivier Blanchard
Macroeconomics, 3/e
Olivier Blanchard
Macroeconomics, 3/e
Olivier Blanchard
Macroeconomics, 3/e
Olivier Blanchard
Macroeconomics, 3/e
Olivier Blanchard
Macroeconomics, 3/e
Olivier Blanchard
Macroeconomics, 3/e
Olivier Blanchard
i
$ PB
2003 Prentice Hall Business Publishing
$100
$ PB
1 i
Macroeconomics, 3/e
Olivier Blanchard
4-3
The Determination of
the Interest Rate, II
Macroeconomics, 3/e
Olivier Blanchard
Macroeconomics, 3/e
Olivier Blanchard
What Banks Do
Banks keep as reserves some of the funds
they have received, for three reasons:
To honor depositors withdrawals
To pay what the bank owes to other banks
Macroeconomics, 3/e
Olivier Blanchard
What Banks Do
Loans represent roughly 70% of banks
nonreserve assets. Bonds account for the
other 30%.
The assets of a central bank are the bonds it
holds. The liabilities are the money it has
issued, central bank money, which is held as
currency by the public, and as reserves by
banks.
Macroeconomics, 3/e
Olivier Blanchard
Bank Runs
Rumors that a bank is not doing well and
some loans will not be repaid, will lead people
to close their accounts at that bank. If enough
people do so, the bank will run out of
reservesa bank run.
To avoid bank runs, the U.S. government
provides federal deposit insurance.
An alternative solution is narrow banking,
which would restrict banks to holding liquid,
safe, government bonds, such as T-bills.
2003 Prentice Hall Business Publishing
Macroeconomics, 3/e
Olivier Blanchard
Macroeconomics, 3/e
Olivier Blanchard
Since
Macroeconomics, 3/e
Olivier Blanchard
In equilibrium, the
supply of central
bank money (H) is
equal to the demand
for central bank
money (Hd):
H Hd
Or restated as:
H = [ c + q( 1- c )]$YL( i )
Macroeconomics, 3/e
Olivier Blanchard
Macroeconomics, 3/e
Olivier Blanchard
4-4
Macroeconomics, 3/e
Olivier Blanchard
Then:
1
H = $YL( i )
[ c + q( 1 - c )]
Supply of money = Demand for money
Macroeconomics, 3/e
Olivier Blanchard
Key Terms
income,
flow,
saving,
savings,
financial wealth, wealth,
stock,
investment,
financial investment,
money,
currency,
checkable deposits,
bonds,
money market funds,
open market operation,
Olivier Blanchard