专业课资料 练习题 真题 曼昆宏观英文版讲义 Ecn101_lecture11

1 0 Econ 101 Intermediate Macro Theory Lecture notes Professor Cetorelli UC Davis Fall 2003 Lecture 11 CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 1 What we have seen so farWhat we have seen so far A consistent framework of analysis to talk about aggregate production income distribution and aggregate demand The model of chapter 3 Another consistent framework of analysis to ponder on the very long run perspective of an economy What explains improvements in standards of living Solow model chapter 7 8 A first look at causes of unemployment ch 6 CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 2 What next What next We are heading toward the analysis in the short run We will be able to understand what is behind the somewhat wild fluctuations in income growth observable over shorter periods of time say 3 5 years We will define the short run as that period of time during which the price of goods P is rigid CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 3 What next What next Hence before we go study the economy in the short run we ought to have a good theory to explain what determines the price level of goods and its changes over time inflation It turns out that a basic generally agreed upon such theory links together prices and inflation with the behavior of MONEY We then turn our attention now to money from an economic perspective 2 macroeconomics fifth edition N Gregory Mankiw PowerPoint Slides by Ron Cronovich macro 2003 Worth Publishers all rights reserved CHAPTER FOUR Money and Inflation CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 5 In this chapter you will learnIn this chapter you will learn The classical theory of inflation causes effects social costs Note that with Classical we mean that prices are flexible markets clear So we are still in the same mode we have been so far This theory applies to the long run It turns out however that such theory also places a good foundation for what we will cover afterwards the economy in the short run Hence understanding this theory well now will also help a lot for the study of the following chapters CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 6 U S inflation its trend 1960U S inflation its trend 1960 20032003 0 2 4 6 8 10 12 14 196019651970197519801985199019952000 Inflation rate CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 7 U S inflation its trend 1960U S inflation its trend 1960 20032003 0 2 4 6 8 10 12 14 196019651970197519801985199019952000 Inflation rate Inflation rate trend 3 CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 8 The connection between The connection between money and pricesmoney and prices Inflation rate the percentage increase in the average level of prices price amount of money required to buy a good Because prices are defined in terms of money we need to consider the nature of money the supply of money and how it is controlled CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 9 Money definitionMoney definition MoneyMoney is the stock is the stock of assets that can be of assets that can be readily used to make readily used to make transactions transactions CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 10 Money functionsMoney functions 1 medium of exchange we use it to buy stuff 2 store of value transfers purchasing power from the present to the future 3 unit of account the common unit by which everyone measures prices and values CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 11 MoneyMoney Anythingwith the previous three functions medium of exchange store of value unit of account can be considered as money 4 CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 12 Money typesMoney types 1 fiat money has no intrinsic value example the paper currency we use modity money has intrinsic value examples gold coins cigarettes in P O W camps salt stones etc Did you see The Shawshank Redemption CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 13 The money supply monetary policyThe money supply monetary policy The money supply is the quantity of money available in the economy Monetary policy is the control over the money supply CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 14 The central bankThe central bank Monetary policy is conducted by a country s central bank In the U S the central bank is called the Federal Reserve the Fed The Federal Reserve Building Washington DC CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 15 The FedThe Fed About every six weeks the Federal Open Market Committee FOMC made up of the members of the board of governors of the Federal Reserve System together with the Presidents of the 12 Regional Federal Reserve Banks meet to decide whether to change money supply and thus change interest rates Next meeting is on October 28 if I had not been here right now I would be working with my other colleagues at the Chicago Fed to meet and brief the President of the Chicago Fed to give him indications to support his vote next week 5 CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 16 How do we measure money How do we measure money Money includes all the assets that can be used in transactions The most obvious asset is currency cash Another category of assets still defined as money is demand deposits funds in your checking accounts A check is typically accepted for payments even though there are some restrictions CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 17 How do we measure money How do we measure money Other bank accounts and some kind of accounts with other financial institutions are also part of money Look at the following table for exact definitions of Monetary Aggregates CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 18 Money supply measures Money supply measures October 6 2003October 6 2003 http www federalreserve gov release h6 Current SymbolAssets includedAmount billions CCurrency 655 8 M1C demand deposits 1289 5 travelers checks other checkable deposits M2M1 small time deposits 6086 7 savings deposits money market mutual funds money market deposit accounts M3M2 large time deposits 8882 9 repurchase agreements institutional money market mutual fund balances CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 19 Monetary aggregatesMonetary aggregates Main point to walk away with Each successive measure of the money supply is BIGGER and LESS LIQUID than the previous one I e checking account deposits in M1 but not C are less liquid than currency Money market deposit account balances in M2 but not M1 are less liquid than demand deposits Large time deposits those over 100 000 and therefore not Federally insured are less liquid than small time deposits 6 CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 20 Monetary aggregatesMonetary aggregates Most attention of monetary authorities is on the behavior of M1 and M2 Also realize that these aggregates are by nature changing over time as a result for instance of financial innovation More on the Fed and monetary policy hopefully later in the term if we have time CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 21 The Quantity Theory of MoneyThe Quantity Theory of Money A simple theory linking the inflation rate to the growth rate of the money supply Call T the total number of transactions related to the exchange of goods and services occurring in a period of time Each transaction involves a price P expressed in the unit of currency to pay for the exchange of the good or service Hence P T represents the total value of all transactions in a period year month day whatever CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 22 The Quantity Theory of MoneyThe Quantity Theory of Money Now in order to perform those transaction we need money How much money In principle if we have to finance P T dollars worth of transaction we need an amount of dollars M P T However not all those transactions occur at the same exact time What might happen is that the same dollar bill used by John to buy a good from Stella will then be used by Stella to make another purchase Both transactions are part of P T Hence the amount of dollar bills needed to finance all transactions may be less than P T if the same dollar bills are used more than once CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 23 The Quantity Theory of MoneyThe Quantity Theory of Money Introduce the concept of velocity of money 7 CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 24 VelocityVelocity basic concept the rate at which money circulates definition the number of times the average dollar bill changes hands in a given time period CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 25 Velocity Velocity cont cont This suggests the following definition where M money supply V velocity T value of all transactions P Price level M V P T CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 26 The quantity equationThe quantity equation Use nominal GDP as a proxy for total transactions Then we have the quantity equation M V P Y where P price of output GDP deflator Y quantity of output real GDP P Y value of output nominal GDP CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 27 Money demand and the quantity equationMoney demand and the quantity equation M P real money balances the purchasing power of the money supply A simple money demand function M P d kY where k how much money people wish to hold for each dollar of income kis exogenous 8 CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 28 Money demand and the quantity equationMoney demand and the quantity equation money demand M P d kY quantity equation M V P Y The connection between them k 1 V When people hold lots of money relative to their incomes kis high money changes hands infrequently Vis low CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 29 back to the Quantity Theory of Moneyback to the Quantity Theory of Money starts with quantity equation assumes Vis constant exogenous VV With this assumption the quantity equation can be written as M VP Y CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 30 The Quantity Theory of MoneyThe Quantity Theory of Money cont cont How the price level is determined With Vconstant the money supply determines nominal GDP P Y Real GDP is determined by the economy s supplies of Kand Land the production function chap 3 The price level is P nominal GDP real GDP M VP Y CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 31 The Quantity Theory of MoneyThe Quantity Theory of Money cont cont Recall from Chapter 2 The growth rate of a product equals the sum of the growth rates The quantity equation in growth rates MVPY MVPY The quantity theory of money assumes is constant so 0 V V V 9 CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 32 The Quantity Theory of MoneyThe Quantity Theory of Money cont cont Let Greek letter pi denote the inflation rate MPY MPY P P MY MY The result from the preceding slide was Solve this result for to get CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 33 The Quantity Theory of MoneyThe Quantity Theory of Money cont cont Normal economic growth requires a certain amount of money supply growth to facilitate the growth in transactions Money growth in excess of this amount leads to inflation MY MY CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 34 The Quantity Theory of MoneyThe Quantity Theory of Money cont cont Y Ydepends on growth in the factors of production and on technological progress the Solow model MY MY Hence the Quantity Theory of Money predicts a one for one relation between changes in the money growth rate and changes in the inflation rate CHAPTER 4CHAPTER 4Money and InflationMoney and Inflation slide 35 International data on International data on inflation and money growthinflation and money growth Inflation rate percent logarithmic scale 1 000 10 000 100 10 1 0 1 Money supply growth percent logarithmic scale 0 11101001 00010 000 Nicaragua Angola Brazil Bulgaria Georgia K