Welcome to the third lecture of our course in Macroeconomics.

Today we will cover a very interesting and rather complex topic:

the role of money in the economy and how the monitory system works.
The structure of this lecture is as follows:
We will start by presenting some basic definitions like asset,
liquidity and money. We will see the roles of money in contemporary
economies and the evolution of some characteristics of money
from antiquity. Then, we will introduce a simple structure of the
monetary system and how the commercial banks
participate in the creation of money through the system of
fractional reserves. This system, without specific sets of control and support,
can be very fragile. In the <font face="Courier"><span style="font-size:
14.6667px;">third </span></font>section of the lecture,
we will analyse how central banks oversee the banking system and control
the money supply. As lenders of last resorts,
the central banks also provide robustness to the monetary and
financial systems. We will finish this lecture by establishing
a formal relationship between the quantity of money and the
price level using the classical theory of inflation and the
quantity equation. Using these frameworks, we will argue that
the main cause of inflation in the long run is the expansion of
the money supply. We hope that you will enjoy this lecture.