Definition of Money Uniqueness of Money Functions of Money Monetary Theory.

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Presentation transcript:

Definition of Money Uniqueness of Money Functions of Money Monetary Theory

Classical View of Money

Keynesian View Functions of Money Liquidity of Money Axiom of Gross Substitution breaks down when Pm Increase or Decrease.

Fractional Reserve Banking Bank A rr=%20 Assets Liabilities Reserves$20Demand Deposit$100 Loan$80 Total$100

Fractional Reserve Banking Bank B rr=%20 Assets Liabilities Reserves$16Demand Deposit$80 Loan$64 Total$80Total$80

Fractional Reserve Banking Bank C rr=%20 Assets Liabilities Reserves$12.8Demand Deposit$64 Loan$51.2 Total$64Total$64

Fractional Reserve Banking Money Created = … =$500 Money Multiplier: m=1/rr =(1/0.20) =5 Potential Multiplier

Money Supply and Monetary Base

Tools Of Monetary Supply 1. Open Market Operation If Central Bank Sells Securities → MB ↘ and Ms ↘ If Central Bank Buys Securities → MB ↗ and Ms ↗ 1. Changing Reserve Ratio If rr ↗, then, mm ↘ & Ms ↘ 2. Changing Discount Rate If d ↗, then, MB↘ and Ms ↘ I f d ↘, then, MB↗ and Ms ↗

Exogenous Monetary Theory

Endogenous Monetary Theory

Intermediate Targets Desirable Properties Measurable Reliable Controble Targets 1. Money Growth 2. Discount Rate 3. The Federal Fund Rate 4. Bank Reserves 5. Eclectic Approach 6. Credit Targets 7. Nominal Income 8. World Money Sup.& Ex.Ra 9. Fiscal & Mont Polic. Cord. 10. Expec. Cred. & Lag

In Islamic Property Right System Money and Capital

Money, Capital & Islamic Financial System Definition Rules of Exchange Markets Financial Market, Capital Market, Commodity Market Banks Financial Services Central Bank Financial Policy : Expansion & Contraction Policy Government Financial Policy

Financial Market No. of securities or value of securities Price of every share A A* P* No. of securities or amount of securities A* A n* n D S S D

Y2Y2 D’’ Aggregate Supply Curve