Money Market

MONEY MARKET EQUILLIBRIUM

Money Supply

 Monetary aggregates
 M1, M2
 To calculate Ms in economy in GDP
 M1 includes Currency, paper notes and coins
 M2 includes bank Deposit, demand deposit, cheques, saving accounts,
 Holding in govt or commercial banks
 Cost of holding money
 Interest zero on cash
 Interest on saving
Money Demand

 Money is demanded not for itself but for paymnets, trade and exchange
 Definition
 The quantity of Money people want to hold at a given time at different rate of
interest
 Effect on P, Y, C, and hence Md
 Holding money is money demand
 If y increases, more saving less hence money demand decreases
Three Motives of Md

 1. Transactory Motive
 Md t = f(Y)
 For daily trnasactions

 2. Precautionary Motive
 Md p = f(Y)
 For risks, sickness and unemployment
Money demand for Speculative Motive

 Money is holded in banks to earn profit

 Md s = -ve f(i)
 Negative relation
 High interest low Md
 Low interest high Md
Graphical presentation