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Teaching PowerPoint Slides - Chapter 15
Teaching PowerPoint Slides - Chapter 15
Portability
Divisibility
Relative Stability
scarcity
Legal
Token
tender
money
Demand
Demand Fiat money
deposit
Transactions
Transactions Speculative
Speculative
motive
motive motive
motive
Controlled
Controlled
by
by Central
Central
Precautionary
Precautionary Bank
Bank
motive
motive
M1
M1 = Consisting of coin, currency notes and demand deposits (bank
money or cheques)
M2
M2 = M1 + Fixed and saving deposits in commercial banks, negotiable
certificates of deposit (NCD) and Bank Negara certificate
M3
M3 = M2 + Savings and fixed deposits in other banking institutions
MONEY
MONEY MARKET
MARKET EQUILIBRIUM
EQUILIBRIUM –– LM
LM CURVE
CURVE
M
M == M
dd
M SS
LM2
Md1
Md2
Output Quantity of money
Factors that shift the LM curve to the right
Decrease in price level
Increase in expected inflation
Decrease in the nominal interest rate on money
Increase in the nominal money supply
Decrease in wealth
C
(240/150) x 100 =
160 PI
4 160 x 4 = 640
H T 140
Medical care 250
Transportation 160
W 180 (180/160) x 100 =
112.5
2 112.5 x 2 = 225
To identify To use as
the distribution USES OF a basis for
of income CPI future contracts
ASSUMPTIONS
1. V is constant MV = PT
2. T is constant
3. Full employment
4. Increase in M will increase the P
ance
Finan Islamic ba
bannk
k
companies
co
Merchant Discount
banks houses
Development Employees
Financial Institutions Provident Fund
FUNCTIONS
Accepting deposits
Providing loans and advances
Providing other banking services and facilities
DEFINITION
– A process where a small given deposit in a commercial
bank will lead to an increase in the supply of money.
Assumptions:
1. Cash ratio is fixed by BNM and its value is constant.
2. Banks do not keep excess cash reserves.
3. The public must keep their money in the bank.
4. Leakage does not exist.
5. Bank’s assets are only in the form of cash and loans.
6. Liability consists of deposits only.
7. Deposits are in the form of current deposits.
Asset Liability
Cash (10%) RM100 Deposits RM1000
Loans (90%) RM900
Total RM1000 Total RM1000
Cash reserve = Cash Ratio x Initial deposit Assume bank’s legal cash
= 10% x 1000 = RM100 requirement is 10%.
Bank will loan out the balance to another person.
IMPORTANT FORMULAE