曼昆第10版课件mankiw10e-lecture-slides-ch04

TheMonetarySystem:WhatitIsandHowItWorksMacroeconomicsN.GregoryMankiw©2019WorthPublishers,allrightsreservedINTHISCHAPTER,YOUWILLLEARN:Thedefinition,functions,andtypesofmoneyHowbanks“create”moneyWhatacentralbankisandhowitcontrolsthemoneysupplyMoney:DefinitionMoney

isthestockofassetsthatcanbereadilyusedtomaketransactions.Money:FunctionsMediumofexchange

weuseittobuystuffStoreofvalue

transferspurchasingpowerfromthepresenttothefutureUnitofaccount

thecommonunitbywhicheveryonemeasurespricesandvaluesMoney:TypesFiatmoneyhasnointrinsicvalueexample:thepapercurrencyweuseCommoditymoneyhasintrinsicvalueexamples:

goldcoins,

cigarettesinPOWcampsNOWYOUTRY

DiscussionquestionWhichofthesearemoney?CurrencyChecksDepositsincheckingaccounts

(“demanddeposits”)CreditcardsCertificatesofdeposit(“timedeposits”)Money:Examples,part1Depositsincheckingaccounts(“demanddeposits”)Yes,thefundsinacheckingaccountservethethreepurposesChecksThecheckitselfisnotmoney,butthefundsinthecheckingaccountaremoneyCurrencyYes;U.S.dollarbills,Mexicanpesos,andothercurrenciesareallmoneyMoney:Examples,part2Certificatesofdeposit(“timedeposits”),orCDsDependsonthelengthoftime;theyareastoreofvalueandaremeasuredinmoneyunits(dollars,forexample)butarenoteasilyspent(mediumofexchange)Asyou’llseeinafewslides,therearemultiplemeasuresofthemoneysupplyCreditcardsNo,theyareameansofdeferredpaymentForcreditcardpurchases,youagreetopaybackyourcreditcardcompanyinthefutureTwodefinitionsThemoneysupplyisthequantityofmoneyavailableintheeconomy.Monetarypolicyiscontroloverthemoneysupply.ThecentralbankandmonetarycontrolMonetarypolicyisconductedbyacountry’scentralbank.TheU.S.centralbankiscalledtheFederalReserve(“theFed”).Tocontrolthemoneysupply,theFeduses

open-marketoperations,thepurchaseandsaleofgovernmentbonds.Moneysupplymeasures,July2017SymbolAssetsIncludedAmountinJuly2017

(billionsofdollars)CCurrency$1,486M1Currencyplusdemanddeposits,traveler’schecks,andothercheckabledeposits3,528M2M1plusretailmoneymarketmutualfundbalances,savingdeposits(includingmoneymarketdepositaccounts),andsmalltimedeposits13,602Banks’roleinthemonetarysystem,part1Themoneysupplyequalscurrencyplusdemand(checkingaccount)deposits:M

=C+DSincethemoneysupplyincludesdemanddeposits,thebankingsystemplaysanimportantrole.AfewpreliminariesReserves(R):theportionofdepositsthatbankshavenotlent.Abank’sliabilitiesincludedeposits;assetsincludereservesandoutstandingloans.100-percent-reservebanking:asysteminwhichbanksholdalldepositsasreserves.Fractional-reservebanking:

asysteminwhichbanksholdafractionoftheirdepositsasreserves.Banks’roleinthemonetarysystem,part2Tounderstandtheroleofbanks,wewillconsiderthreescenarios:Nobanks100-percent-reservebanking(banksholdalldepositsasreserves)Fractional-reservebanking(banksholdafractionofdepositsasreserves,usetheresttomakeloans)Ineachscenario,weassumeC=$1,000.Scenario1:NobanksWithnobanks,

D=0andM=C=$1,000.Scenario2:100-percent-reservebankingInitiallyC=$1000,D=$0,M=$1,000Nowsupposehouseholdsdepositthe$1,000at“Firstbank.FIRSTBANK’SbalancesheetAssetsLiabilitiesReserves$1,000Deposits$1,000Afterthedeposit:

C=$0,

D=$1,000,

M=$1,000LESSON:

100%-reservebankinghasnoimpactonsizeofmoneysupply.Scenario3:Fractional-reservebanking(1of4)Supposebankshold20%ofdepositsinreserve,makingloanswiththerest.Firstbankwillmake$800inloans.FIRSTBANK’SbalancesheetAssetsLiabilitiesReserves$200Loans$800Deposits$1,000Themoneysupplynowequals$1,800:Depositorhas$1,000in

demanddeposits.Borrowerholds$800incurrency.Scenario3:Fractional-reservebanking(2of4)Supposebankshold20%ofdepositsinreserve,makingloanswiththerest.Firstbankwillmake$800inloans.FIRSTBANK’SbalancesheetAssetsLiabilitiesReserves$200Loans$800Deposits$1,000Themoneysupplynowequals$1,800:Depositorhas$1,000in

demanddeposits.Borrowerholds$800incurrency.LESSON:Inafractional-reserve

bankingsystem,bankscreatemoney.Scenario3:Fractional-reservebanking(3of4)Supposetheborrowerdepositsthe$800inSecondbank.Initially,Secondbank’sbalancesheetis:FIRSTBANK’SbalancesheetAssetsLiabilitiesReserves$160Loans$640Deposits$800Secondbankwillloan80%ofthisdeposit.Scenario3:Fractional-reservebanking(4of4)Ifthis$640iseventuallydepositedinThirdbank,ThenThirdbankwillkeep20%ofitinreserve

andloanouttherest:FIRSTBANK’SbalancesheetAssetsLiabilitiesReserves$128Loans$512Deposits$640Finding

thetotalamountofmoneyOriginaldeposit=$1000+Firstbanklending=$800+Secondbanklending=$640+Thirdbanklending=$512+otherlending…Totalmoneysupply=(1/rr)×$1,000

whererr=ratioofreservestodepositsInourexample,rr=0.2,soM=$5,000MoneycreationinthebankingsystemAfractional-reservebankingsystemcreatesmoney,butitdoesn’tcreatewealth.Bankloansgiveborrowerssomenewmoneyandanequalamountofnewdebt.Bankcapital,leverage,andcapitalrequirements,part1Bankcapital:theresourcesabank’sownershaveputintothebankAmorerealisticbalancesheet:AssetsAssetsLiabilitiesand

owners’equityLiabilitiesand

owners’equityReserves$200Deposits$750Loans500Debt200Securities300Capital

(owners’equity)50Bankcapital,leverage,andcapitalrequirements,part2Leverage:theuseofborrowedmoneytosupplementexistingfundsforpurposesofinvestmentLeverageratio

=assets/capital=$(200+500+300)/$50=20AssetsAssetsLiabilitiesand

owners’equityLiabilitiesand

owners’equityReserves$200Deposits$750Loans500Debt200Securities300Capital

(owners’equity)50Bankcapital,leverage,andcapitalrequirements,part3Beinghighlyleveragedmakesbanksvulnerable.Example:Supposearecessioncausesourbank’sassetstofallby5%,to$950.Then,capital=assets–liabilities=950–950=0AssetsAssetsLiabilitiesand

owners’equityLiabilitiesand

owners’equityReserves$200Deposits$750Loans500Debt200Securities300Capital

(owners’equity)50Bankcapital,leverage,andcapitalrequirements,part4Capitalrequirement:minimumamountofcapitalmandatedbyregulatorsintendedtoensurethatbankswillbeabletopayoffdepositorshigherforbanksthatholdmoreriskyassets2008–2009financialcrisis:Lossesonmortgagesshrankbankcapital,slowedlending,exacerbatedtherecession.Govtinjectedbillionsofdollarsofcapitalintobankstoeasethecrisisandencouragemorelending.AmodelofthemoneysupplyExogenousvariablesMonetarybase,B=C+RcontrolledbythecentralbankReserve-depositratio,rr=R/DdependsonregulationsandbankpoliciesCurrency-depositratio,cr=C/Ddependsonhouseholds’preferencesSolvingforthemoneysupply(1of2)Solvingforthemoneysupply(2of2)Ifrr<1,thenm>1IfmonetarybasechangesbyΔB,

thenΔM=m

×ΔBmisthemoneymultiplier,theincreaseinthemoneysupplyresultingfromaone-dollarincreaseinthemonetarybase.NOWYOUTRY

ThemoneymultiplierSupposehouseholdsdecidetoholdmoreoftheirmoneyascurrencyandlessintheformofdemanddeposits.

Determinetheimpactonthemoneysupply.

Explaintheintuitionforyourresult.NOWYOUTRY

Themoneymultiplier,solutionImpactofanincreaseinthecurrency-depositratio

Δcr>0.Anincreaseincrincreasesthedenominator

ofmproportionallymorethanthenumerator.Somfalls,causingMtofall.Ifhouseholdsdepositlessoftheirmoney,thenbankscan’tmakeasmanyloans,sothebankingsystemwon’tbeabletocreateasmuchmoney.Theinstrumentsofmonetarypolicy,part1TheFedcanchangethemonetarybasebyusing:openmarketoperations(theFed’spreferredmethodofmonetarycontrol)Toincreasethebase,theFedcouldbuygovernmentbonds,payingwithnewdollars.thediscountrate:theinterestratetheFedchargesonloanstobanksToincreasethebase,theFedcouldlowerthediscountrate,encouragingbankstoborrowmorereserves.Theinstrumentsofmonetarypolicy,part2TheFedcanchangethereserve–depositratiobyusing:reserverequirements:Fedregulationsimposeaminimumreserve–depositratio.Toreducethereserve–depositratio,

theFedcouldreducereserverequirements.interestonreserves:TheFedpaysinterestonbankreservesdepositedwiththeFed.Toreducethereserve–depositratio,

theFedcouldpayalowerinterestrateonreserves.WhytheFedcan’tpreciselycontrolMHouseholdscanchangecr,causingmandMtochange.Banksoftenholdexcessreserves(reservesabovethereserverequirement).Ifbankschangetheirexcessreserves,thenrr,m,andMchange.CASESTUDY:Quantitativeeasing(1of2)MonetarybaseFrom8/2008to8/2011,

themonetarybasetripled,

butM1grewonlyabout40%.CASESTUDY:Quantitativeeasing(2of2)Quantitativeeasing:TheFedboughtlong-termgovtbondsinsteadofT-billstoreducelong-termrates.TheFedalsoboughtmortgage-backedsecuritiestohelpthehousingmarket.Butafterlossesonbadloans,bankstightenedlendingstandardsandincreasedexcessreserves,causingthemoneymultipliertofall.Ifbanksstartlendingmoreastheeconomyrecovers,rapidmoneygrowthmaycauseinflation.Topreventthis,theFedisconsideringvarious“exitstrategies.”CASESTUDY:Bankfailuresinthe1930s,part1From1929to1933:morethan9,000banksclosedthemoneysupplyfell28%ThisdropinthemoneysupplymaynothavecausedtheGreatDepression,butitcertainlycontributedtoitsseverity.CASESTUDY:Bankfailuresinthe1930s,part2Lossofconfidenceinbanks:increasescr,reducesmBanksbecamemorecautious:increasesrr,reducesmCASESTUDY:Bankfailuresinthe1930s,part3August1929March1933%changeM26.519.0−28.3%C3.95.541.0D22.613.5−40.3B7.18.418.3C3.95.541.0R3.22.9−9.4m3.72.3−37.8rr0.140.2150.0cr0.170.41141.2Cou