Two Sources of Money Demand transaction Demand for Money.

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Two Sources of Money Demand transaction Demand for Money. need money? The primary reason is that people’s incomes and expenditures do not come at the same time For example, I might be paid on the last day of the month but I buy food, newspapers, gasoline, and clothing throughout the month. If I made all my ‘purchases the very […]

The Costs of Holding, Money

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The Costs of Holding, Money These three functions of money are extremely important to people, so important that individuals are willing to incur a -cost to hold currency or low-yielding checking accounts. What is the opportunity of holding money ~ It is the sacrifice in ·interest that you must incur by’ holding money rather than a. riskier, less liquid  or investment. say.that […]

Money’s Functions

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Money’s Functions Before we analyze the demand for money, let’s note, money’s functions: • By far the most important function of money is to serve as a medium of exchange. without money we Would be constantly roving around looking . for someone to barter with. We are often reminded of money’s utilitywhen it does not work properly. Think about the case […]

THE DEMAND FOR MONEY

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THE DEMAND FOR MONEY The demand for money is different from the demand for ice cream or movies. Money is not desired for its own sake; you cannot eat nickels, and we seldom hang $100 bills on the wall for the artistic quality of .their engraving. Rather, we demand money because it serves us indirectly” as a lubricant to trade […]

Real vs. Nominal Interest Rates

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Real vs. Nominal Interest Rates Interest is measured in dollar terms, not in terms of houses or cars or goods in general. The nominal interest rate measures the yield in dollars per year per dollar invested. But dollars can become distorted yardsticks. The prices of houses, cars, and goods in general change from year to year-these days prices generally rise due […]

An Array of Interest Rates

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An Array of Interest Rates Textbooks often speak of “the interest rate, but in fact today’s complex financial system has a vast array of interest rates. Interest rates differ ‘mainly in terms f the characteristics of the loan or of the borrower. Let us review the major differences. When these three factors (along with other considerations such as status and […]

INTEREST RATES:THE PRICE OF MONEY

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INTEREST RATES: THE PRICE OF MONEY When we later examine how money affects economic activity,we will focus on the interest rate, which is often called the price of money. Interest-is the payment made for the use of money. The interest rate i the amount of interest paid per unit of time expressed as a percentage of the amount borrowed. In other […]

Broad Money.

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Broad Money Although M! is, strictly speaking, the most appropriate measure of money as a means of payment. a second closely watched aggregate is broad M1 or M2. Sometimes called as well as savings accounts in hanks and similar assets that are very close substitutes for narrow money. There are. many other technical definitions of money that are used by specialists in […]

Narrow (Transactions) Money

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Narrow (Transactions) Money One important and closely watched measure of money is narrow or transactions money. denoted by M which consists of items that are actually used for transactions. The following are the components of M. Coins. MI includes coins not held by banks Paper currency. More significant is paper currency. Most of us know little more about a $1 or […]

Components of the Money Supply

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Components of the Money Supply Let us now look more carefully at the different kinds of money that Americans use. The major mimetic aggregates are the quantitative measures of the supply of money. They are known today as M1 and M2• and ‘you can read about their week-to-week movements ‘in the newspaper. along with sage commentaries on the significance of […]