SUPPLY OF and DEMAND FOR MONEY

INFLATION nonbank public, demand

deposits, other checkable
Inflation is a qualitative measure of
deposits, and traveler’s
the rate at which the average price level of a
checks.
basket of selected goods and services
increases over a period of time.
 M2: Broad Money
- Refers primarily to money
used as a store of value.
INFLATION RATE - In addition to M1, this
Inflation rate is the rate of change in measures includes money
the weighted average prices of goods and held in savings deposits,
services typically purchased by the money market deposits
consumers. accounts, non - institutional
money market mutual funds
and other short-term money
market assets.
INFLATION TARGETING
Inflation targeting is a framework for  M3: Broad Money Liabilities
monetary policy that focuses mainly on - Refers primarily to money
achieving the price stability as the ultimate used as a unit of account.
objective of monetary policy. - Consists of M2 plus peso
deposit substitutes, such as
promissory notes and
THE MONEY SUPPLY commercial papers.

The money supply is the total  M4:

quantity of money circulating in the economy - Consists of M3 plus
at the particular time. It is the entire stock of transferable and other
currency or other liquid instruments in the deposits in foreign currency
country. It includes cash, coins, balances
held in checking and saving accounts and
other near money substitutes. Money supply
HOW SUPPLY AFFECTS THE INFLATION
is also known as the money stock.
An increase in the supply of money
typically lowers interest rates. This
KEY MEASURES FOR THE MONEY encourages private consumptions. In
SUPPLY addition, this increase the nominal output or
the Gross Domestic Product (GDP). Thus,
The money supply reflects the increases inflation rate.
different types of liquidity each type of money
has in the economy. A decrease in the supply of money,
increase the interest rates. This is mirrored
 M1: Narrow Money by an equal decrease in the nominal output.
- Refers primarily to money Also, this will decrease the consumer
used as a medium of spending. Thus, decreasing the inflation rate.
exchange.
- It includes currency in
circulation held by the
SUPPLY CURVE
The supply curve of money shows
the relationship between the quantity of
money supplied and the market interest rate,
all other things remain unchanged.
The quantity of reserves is
determined by the Federal Reserve policy. In
connection with this, we assume that the
supply curve for money is drawn as a vertical
line.
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Interest rates
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HOW CENTRAL BANK CHANGES MONEY
SUPPLY?
1. Changing Reserve Requirements – the
regulation requiring banks to hold a fraction
of checkable deposits as vault cash or
deposits
2. Discount Window – Central banks make
discount loans to banks, serving as the
channel for meeting the liquidity needs of
banks.
3. Discount Policy – the policy tool of setting
the discount rate and the terms of discount
lending.
4. Open Market Operations – the
purchasing and sales of securities of the
central bank in the financial market.
THE MONEY DEMAND
The demand for money refers to how
much assets individuals with to hold in the
form of money. It is sometimes referred to as
liquidity preference. The demand for the
money is related to income, interest rates
and whether people prefer to hold cash
(money) or illiquid assets like money
REASONS/MOTIVES FOR THE DEMAND
OF MONEY
 Transaction demand – Money
demanded for day-to-day payments
through balances held by households
and firms. This kind of demand varies
with GDP; it does not depend on the
rate of interest.
 Precautionary demand – Money
as a result of
unanticipated payments or
unexpected events.
 Speculative demand – Money
demanded because of expectations
about interest rates in the future. This
means that people will decide to
expand their money balances and
hold off on bond purchases if they
expect interest rates to rise. This kind
of demand has a negative
relationship with the interest rate.
THE DEMAND CURVE
The demand curve for money shows
the quantity for money shows the quantity of
money demanded at each interest rate, all
other things unchanged. The quantity of
money demanded is inversely proportional to
the interest rates. An increase in the interest
rate reduces the quantity for money
demanded. Ad, a reduction of interest rate
increases the quantity for the money  Price Level
demanded.

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Interest rates

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MONEY MARKET EQUILIBRIUM

SHIFTS IN THE SUPPLY OF MONEY
Occurs at the interest rate at which
the quantity of money demanded is equal to
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the quantity of money supplied.
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https://www.slideshare.net/mobile/NayanVa
ghela/the-demand-for-and-supuply-of-
money
SHIFTS IN THE DEMAND FOR MONEY
https://www.slideshare.net/mobile/akmazain
• Income Effect al/demand-supply-of-money
https://quickonomics.come/three-measure-
money-supply/

𝑀𝑠 https://www.investopedia.com/terms/m/mon
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