文档介绍：Chapter 4:Financial Market
4-1:The Demand for Money
4-2:The Determination of the Interest Rate:Ⅰ
4-3: The Determination of the Interest Rate:Ⅱ
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4-1:The Demand for Money
Assume that you the choice between only two financial assets:
●Money , which can be used for transactions, but pays zero interest. In reality, there are two types of money: currency,the coins and bills issued by the central bank, and checkable deposits, the bank deposits on which you can write checks.
●Bonds, which cannot be used for transactions, but pay a positive interest rate,i. In reality there are many other assets than money, and in particular many types of bonds, each associated with a specific interest rate.
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The relation between the demand for money, nominal e, and the interest rate
Md =$YL(i) ()
(-)
Md /$Y=L(i) ()
The demand for money increases in proportion to nominal e.
The demand for money depends on the interest rate. This is captured by the function L(i) and the negative sign underneath: An increase in the interest rate decreases the demand for money.
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The Demand for Money
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4-2:The Determination of the Interest Rate:Ⅰ
Money Demand, Money Supply, and the Equilibrium Interest Rate
ary Policy and Open Market Operations
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The LM Relation
Equilibrium in financial market requires that money supply be equal to money demand, that Ms= equation () for money demand, the equilibrium condition is
Money supply = Money demand
M = $YL(I)
This equation tells us that the interest rate must be such that people are willing to hold an amount of money equal to the existing money supply. This equilibrium relation is called the LM relation.
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The determination of the Interest Rate
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The Effects Nominal e on the Interest Rate
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The Effects of an Increase in the Money Supply on the Interest Rate
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ary Policy and Open Market Operations
The interest rate is determi