1. Chapter Six The Demand for Money 1. Monetary Aggregates Components of the Money Stock M 0 －－－ Currency in Circulation M 1 －－－ M 1 －－－ M 2 －－－ M 2 －－－ M 3 －－－ M 3 －－－ L －－－ L －－－

2. 2. The Functions of Money means of payments or medium of means of payments or medium of exchange; exchange; store of value; store of value; unit of account; unit of account; standard of deferred payment; standard of deferred payment; international money international money

3. 3. Demand for Money: Theory The transactions motive The transactions motive is the demand for money arising from is the demand for money arising from the use of money in making regular the use of money in making regular payments. payments. The Inventory Approach The Inventory Approach Square-root Formula or Square-root Formula or Baumol-Tobin Model. Baumol-Tobin Model.

4. The Precautionary Motive The Precautionary Motive is the demand for money to meet is the demand for money to meet unforeseen contingencies. unforeseen contingencies. The Speculative motive The Speculative motive arises from uncertainties about the money arises from uncertainties about the money value of other assets that an individual value of other assets that an individual can hold. can hold.

5. 4. Empirical Evidence Elasticity of real M1 money demand Elasticity of real M1 money demand Elasticity of real M2 money demand Elasticity of real M2 money demand 5. The Income Velocity of Money and the Quantity Theory Quantity Theory

6. Chapter Seven The Fed,Money,and Credit 1. Money stock determination: Public: The currency-deposit ratio The currency-deposit ratio Business bank: The reserve-deposit ratio The reserve-deposit ratio The central bank High-powered money High-powered money

7. 2. Money multiplier Currency Reserves Deposits

8. Money multiplier A numerical example: A numerical example:

9. 3. The Instruments of Monetary Control Open Market Operation The Fed Balance Sheet Foreign Exchange and the Base Loans and Discounts The Treasury and the Fed Financing Federal Deficits

10. The balance sheet for central bank （ U.S) Assets (sources) Liabilities (uses) Assets (sources) Liabilities (uses) Gold & FX Currency Gold & FX Currency Credit Held by public Credit Held by public Loans and discount Vault cash Loans and discount Vault cash Govt. securities Bank deposits Govt. securities Bank deposits Net other credit Net other liabilities Net other credit Net other liabilities Monetary base Monetary base Monetary base Monetary base (sources) (uses) (sources) (uses)