Sie sind auf Seite 1von 32

Quantity Theory of

Money
Velocity
V =

P Y
M

Equation of Exchange

M V = P Y

Quantity Theory of Money


1. Irving Fishers view: V is fairly constant
2. Equation of exchange no longer identity
3. Nominal income, PY, determined by M
4. Classicals assume Y is determined by real
factors, not monetary
5. P determined by M
Quantity Theory of Money Demand
1
M =
PY
V
Md = k PY
Implication: interest rates not important to Md

Change in Velocity
from Year to Year:
19152002

Cambridge Approach
Is velocity constant?
1. Classicals thought V
constant because didnt
have good data
2. After Great Depression,
economists realized
velocity far from constant

Keyness Liquidity
Preference Theory

3 Motives
1.Transactions motiverelated to Y
2.Precautionary motiveconstant
3.Speculative motive
A. related to W and Y
B. negatively related to i
Liquidity Preference
P

Md
=

f(i, Y)
+

Keyness Liquidity
Preference Theory

Implication: Velocity not constant


P
Md

1
=
f(i,Y)

Multiply both sides by Y and substitute in M =


Md
V
1.
2.

PY
=
M

Y
=
f(i,Y)

i , f(i,Y) , V
Change in expectations of future i or change
f(i,Y) results in a change in V

Determination of Output
Keynesian IS-LM Model assumes price level is fixed
Aggregate Demand
Yad = C + I + G + NX
Equilibrium
Y = Yad
Consumption Function
C = a + (mpc YD)
Investment
1.
Fixed investment
2.
Inventory investment
Only planned investment is included in Yad

Consumptio
n
Function

Keynesian Cross Diagram

Assume G = 0, NX = 0, T
= 0
Yad = C + I = 200 + .5Y
+ 300 = 500 + .5Y
Equilibrium:
1. When Y > Y*, Iu > 0
Y to Y*
2. When Y < Y*, Iu < 0
Y to Y*
8

Expenditure Multiplier

Analysis of Figure 3:
Expenditure Multiplier
I = + 100 Y/I = 200/100 = 2
1
Y = (a + I)
1 mpc
A = a + I = autonomous spending
Conclusions:
1.Expenditure multiplier = Y/A = 1/(1
mpc)
whether change in A is due to change in
a or I
2. Animal spirits change A

The Great Depression


and the Collapse of
Investment

Role of Government

Analysis of Figure 5:
Role of Government
G = +
1. With
.5Y,
2. With

400, T = + 400
no G and T, Yd = C + I = 500 + mpc Y = 500 +
Y1 = 1000
G, Y= C + I + G = 900 + .5Y, Y2 = 1800
3. With G and T, Yd = 900 + mpc Y mpc T = 700
+ .5Y, Y3 = 1400
Conclusions:
1. G Y ; T Y
2. G = T = + 400, Y 400

Role of International
Trade

NX = +100,
Y/NX = 200/100 = 2
= 1/(1 mpc) = 1/
(1 .5)

Summary:
Factors
that
Affect Y

IS
Curve
IS curve
1. i I NX
, Yad , Y
Points 1, 2,
3 in figure
2. Right of IS:
Y > Yad Y
to IS
Left of IS:
Y < Yad Y
to IS

16

Preference
Framework to Loanable
Funds
Keyness Major Assumption
Two Categories of Assets in Wealth
Money
Bonds
1. Thus:

Ms + Bs = Wealth

2. Budget Constraint: Bd + Md = Wealth


3. Therefore:

Ms + Bs = Bd + Md

4. Subtracting Md and Bs from both sides:


M s M d = Bd Bs
Money Market Equilibrium
5. Occurs when Md = Ms
6. Then Md Ms = 0 which implies that Bd Bs = 0, so
that Bd = Bs and bond market is also in equilibrium

1. Equating supply and demand for bonds as


in loanable funds framework is equivalent
to equating supply and demand for money
as in liquidity preference framework
2. Two frameworks are closely linked, but
differ in practice because liquidity
preference assumes only two assets, money
and bonds, and ignores effects from
changes in expected returns on real
assets

Liquidity Preference
Analysis
Derivation of Demand
Curve

1. Keynes assumed money has i = 0


2. As i , relative RETe on money (equivalently,
opportunity cost of money ) Md
3. Demand curve for money has usual downward slope
Derivation of Supply curve
1. Assume that central bank controls Ms and it is a
fixed amount
2. Ms curve is vertical line
Market Equilibrium
1. Occurs when Md = Ms, at i* = 15%
2. If i = 25%, Ms > Md (excess supply): Price of bonds
, i to i* = 15%
3. If i =5%, Md > Ms (excess demand): Price of bonds ,
i to i* = 15%

Money
Market
Equilibri
um

Rise in Income or the


Price Level

1. Income , Md , Md
shifts out to
right
2. Ms unchanged
3 i* rises from i1 to
i2

Rise in Money Supply

1. Ms , Ms shifts
out to right
2. Md unchanged
3. i* falls from i1
to i2

Factors
that
Shift
Money
Demand
and
Supply
Curves

LM Curve

LM curve
1. Y , Md , i
Points 1, 2, 3 in figure
d
2. Right of LM: excess M , i to LM
Left of LM : excess Ms, i to
LM

24

ISLM
Mode
l
Point E,
equilibrium where
Y = Yad (IS) and
Md = M s (LM )
At other points
like A, B, C, D,
one of two
markets is not in
equilibrium and
arrows mark
movement towards
point E

Shift
in
the
IS
Curve

1. C : at given iA, Yad ,


Y IS shifts right
2. Same reasoning when I
, G , NX , T

Shift in the LM Curve from a


Rise in Ms

1. Ms : at given YA, i in panel (b) and (a) LM shifts to the right

Shift in the LM Curve from a


d
Rise in M

1. M

: at given YA, i in panel (b) and (a) LM shifts to the left

Response to an Increase in
s
M

1. M s : i , LM shifts
right Y i

Response to Expansionary
Fiscal Policy
1. G or T : Yad , IS
shifts right Y i

Summary
:
Factors
that
Shift
IS and
LM
Curves

Effective
ness of
Monetary
and
Fiscal
Policy
1. M d is unrelated to i i , M d
= M s at same Y LM vertical
2. Panel (a): G , IS shifts right
i , Y stays same (complete
crowding out)
3. Panel (b): M s , Y so M d , LM
shifts right i Y
Conclusion: Less interest
sensitive is M d, more effective
is monetary policy relative to
fiscal policy
32

Das könnte Ihnen auch gefallen