ECO102: Chapter 5

Money & Banking

1
What is money?
Any good that can be used for payment for goods and
services and for repayment of loans.

2
3
Evolution of money through time

4
5
6
7
Narrow money (M1)

8
Broad money (M2)

9
Solved question 2

10
The creation of money

11
The creation of money contd.

12
13
14
15
16
 
Total money created from $x
deposited =

=$10,000

17
Two important assumptions

18
19
What will happen if CB increases the crr?

What will happen if people prefer to hold cash rather than bank accounts?

20
The monetary base (MB)

21
Relation between monetary base (MB) and narrow money (M1)

22
Solved question 3

a. M1 equals the sum of currency held by the public ($150 million) and checkable
bank deposits ($500 million) equal to $650 million.

23