Monetary Policy

Direction: Write your answer in the space provided.

Money supply vs Money demand

Money supply is the amount of money supplied in the public for the people to consume. While
Money demand is the demand of people of money for their daily consumption.

Money vs Wealth

Money is the medium or current used in trading. While wealth is the amount of money r
properties a person have.

Flow vs stock

A flow, or flow variable, is an economic magnitude describing behavior that occurs over time

and is therefore meaningful only relative to the unit of time. While A stock is a type of
investment that represents an ownership share in a company.

M1 vs M2

M1 money supply includes those monies that are very liquid such as cash, checkable (demand)
deposits, and traveler's checks. While M2 money supply is less liquid in nature and
includes M1 plus savings and time deposits, certificates of deposits, and money market funds. 

M3 vs M4

The M3 measurement includes assets that are less liquid than other

components of the money supply and are referred to as “near, near money.” While the M4
money supply is defined as a measure of notes and coins in circulation (M0) + bank accounts.

Bonds vs Stocks

A bond is a fixed income instrument that represents a loan made by an investor to a borrower
(typically corporate or governmental). While a stock is a type of investment that represents an
ownership share in a company.

Nominal Income vs Real Income

the nominal values of something are its money values in different years. While  real values adjust
for differences in the price level in those years.

www.econlib.org 
www.investopedia.com
traders-paradise.com 
courses.lumenlearning.com
www.investorwords.com

Part 3: Reasercher

Direction: Research on the famous Quantity Theory od Money by John Maynard Keynes.

List down and explain the important assumptions of Keynes’ Quantity Theory of Money.
1. All factors of production are in perfectly elastic supply so long as there is any unemployment.
2. All unemployed factors are homogeneous, perfectly divisible and interchangeable.
3. There are constant returns to scale so that prices do not rise or fall as output increases.
4. Effective demand and quantity of money change in the same proportion so long as there are
any unemployed resources.

http://www.yourarticlelibrary.com/economics/money/the-keynesian-theory-of-money-and-
prices-assumptions-superiority-and-criticisms-economics/10961

What are the major criticisms on Keynes’ Quantity Theory of Money?

1. Direct Relation:
Keynes mistakenly took prices as fixed so that the effect of money appears in his analysis in
terms of quantity of goods traded rather than their average prices. That is why Keynes adopted
an indirect mechanism through bond prices, interest rates and investment of the effects of
monetary changes on economic activity. But the actual effects of monetary changes are direct
rather than indirect.
2. Stable Demand for Money:
Keynes assumed that monetary changes were largely absorbed by changes in the demand for
money. But Friedman has shown on the basis of his empirical studies that the demand for money
is highly stable.
3. Nature of Money:
Keynes failed to understand the true nature of money. He believed that money could be
exchanged for bonds only. In fact, money can be exchanged for many different types of assets
like bonds, securities, physical assets, human wealth, etc.
4. Effect of Money:
Since Keynes wrote for a depression period, this led him to conclude that money had little effect
on income. According to Friedman, it was the contraction of money that precipitated the
depression. It was, therefore, wrong on the part of Keynes to argue that money had little effect on
income. Money does affect national income.
http://www.yourarticlelibrary.com/economics/money/the-keynesian-theory-of-money-and-
prices-assumptions-superiority-and-criticisms-economics/10961
Do you subscribe to the theory of John Maynard Keynes ? Justify.
Yes I do, because just like in our country, money has large role in keeping our economy intact.
In money plays a huge role in the lives of every Filipino.