1、For more classroom resources as well as discussion forums visit the AP Macroeconomics Teacher Communityhttps:/apcommunity.collegeboard.org/web/apmacro/home,Money Supply (M1) = Currency + Checkable Deposits+Travelers Checks Outstanding,$2,269.7 Billion,$1,048.6 Billion,$1,217.1 Billion,$4 Billion,As
2、of July 13, 2012,M1 With Components,Currency as Percentage of M1,As of July 13, 2012,M2 = $9,991.5 Billion,M1 $2,269.7 Billion,+,Savings Deposits $6,386.4 Billion,+ Small-Denomination Time Deposits $694.9 Billion,+ Money Market Mutual Funds $640.5 Billion,M2,Money Supply and GDP,Velocity: The number
3、 of times per year that the average dollar in the money supply is spent for final goods and services. Economics, McConnell Brue Flynn, 19th edition, 8-30,M1V = PQ,M1 x Velocity = Nominal GDP,Current Figures,As of Jan 1, 2012,V = PQ/M1 = 6.96,Velocity of M1,Market for “Federal Funds”,Federal Funds Ra
4、te: Rate at which banks charge one another for overnight loans made from excess reserves. rt = nominal interest rate target for federal funds (0% - 0.25 % for July 2012),MS,MD,rt,Market for “Federal Funds”,MS = Money Supply essentially set by the Federal Reserve MD = Money Demand Influences: Transac
5、tion demand Nominal GDP or Income (+) Asset/Speculative Demand Opportunity cost of holding money (-) Precautionary Demand Unforeseen Expenses (+),MS,MD,rt,Federal Funds Rate,Real Interest Rates and Interest-Sensitive Investment and Consumption,r1,1,The Structure of Nominal Interest Rates,Real Intere
6、st Rate = RNominal Expected InflationExample: 15-Year Mortgage Real Interest Rate = 3.17% 1.5% = 1.67%,As of July 2012,Example: Real 30-Year Mortgage Rate,Balance Sheet: Bank A,Bank A has no excess reserves,Balance Sheet: Bank B,Bank B has $50 excess reserves,Required Reserve Ratio,Bank reserves, re
7、quired and/or excess, may either be held at: The bank (vault cash) The regional Federal Reserve Bank,A Model of Deposit Creation,When a commercial bank receives a cash deposit, the banks ability to increase loans begins a chain of new loans that can lead to a multiplied increase in demand deposits a
8、nd in the money supply. The extent of the maximum multiplied increase is directly tied to the required reserve ratio.,An Example,Assume Person A deposits $1000 of cash, previously held in her home, in Bank I. Bank I must maintain $100 of reserves against Person As deposit. This allows Bank I to loan
9、 out $900 to Person B.,Required Reserve Ratio= 10%,An Example,Next Person B takes the loan and employs a contractor, Person C, to build a deck for $900 . Bank I must maintain $100 of reserves against Person As deposit. The contractor (Person C) deposits the $900 into his bank, Bank II. Bank II must
10、maintain $90 of cash reserves against this deposit of $900. This allows Bank II to loan out an additional $810.,Required Reserve Ratio= 10%,An Example,Assume Bank II lends $810 to person D who wishes to have a medical procedure. Person D pays the physician (Person E) the $810; the physician deposits
11、 the $810 in her account in Bank III. Bank III must then hold $81 in cash reserves allowing Bank III to lend out $729 to Person F.,Required Reserve Ratio= 10%,An Example,This process continues with the following end result:,Required Reserve Ratio= 10%,The $1,000 in new reserves represents the $1,000
12、 cash deposit by Person A. These reserves are now spread across many banks.,An Example,The deposit creation multiplier is equal to 1/(Required Reserve Ratio). In this example this multiplier is equal to 1/.10 = 10 The maximum final increase in demand deposits is 10 times the increase in cash reserve
13、s of $1000.,Required Reserve Ratio= 10%,Change in the Money Supply,Since the Money Supply is the sum of circulating cash and demand deposits, in this case the maximum increase in the money supply is $9,000. Circulating cash falls by $1,000 (Person As original deposit of cash into Bank I) While deman
14、d deposits grow by $10,000, for a net increase of $9,000,Limitations to the Maximum Increase,Banks keep excess reserves: Bank I need not increase loans by a full $900, the maximum legal increase in loans. In the absence of sufficiently credit-worthy customers, for example, Bank I may keep excess res
15、erves, loaning out only $700 for example, maintaining $200 of excess reserves.,Limitations to the Maximum Increase,Leakage to coin and currency: The contractor (Person C) was paid $900. If instead of depositing the full $900 in his account at Bank II, the contractor kept $100 in cash and only deposi
16、ted $800, then Bank II would only have been able to increase its loans by $720 (90% of $800) instead of $810 (90% of the full $900.,Limitations to the Maximum Increase,Time: This process takes many iterations to approach its full impact. After several months, only a partial multiplied increase in de
17、mand deposits can be expected.,Example 2: Using Bank Balance Sheet,Bank I: The $1000 deposit by Person A generates a $1000 increase in cash reserves and a $1000 increase in demand deposits.,Example 2: Using Bank Balance Sheet,Bank I: Bank I may loan out $900 to Person B to build the deck. The bank p
18、uts the proceeds of the loan into Person Bs checking account at Bank I, so that Person B may write a check to pay the contractor.,Example 2: Using Bank Balance Sheet,Bank I: Once the contractor (Person C) cashes the check, Person Bs demand deposits decrease by $900 and the cash reserves decrease by
19、$900, as the proceeds of the check are sent to Bank II, where the contractor (Person C) deposits the check.,Example 2: Using Bank Balance Sheet,Bank I: The final change for Bank I is: An increase in Demand Deposits of (Person A) of $1000, An increase in loans of $900 (Person B), An increase of cash
20、reserves of $100. Note that Bank I is keeping new cash reserves of $100 equal to 10% of the new demand deposit, the amount consistent with the required reserve ratio of 10%.,Open Market Operation- Expansionary,r0,r1,Open Market Operation- Expansionary,S,P1,P0,D,Secondary Market for Bonds,Open Market
21、 Operation- Expansionary,rr1,I1,Open Market Operation- Expansionary,Goals: GDPreal will Increase Employment will Increase Unemployment will Decrease,Open Market Operation- Contractionary,r1,r0,Open Market Operation- Contractionary,S,P0,S,P1,Secondary Market for Bonds,Open Market Operation- Contracti
22、onary,I1,rr1,Open Market Operation- Contractionary,Goal: Price Level will Decrease,Leads to:,Expansionary Monetary Policy,Increased Money Supply Decreased Interest Rates Increased Investment Increased Aggregate Demand Increased GDP Increased Employment Decreased Unemployment,Traditional Tools of Exp
23、ansionary Monetary Policy,Open Market Purchase of Bonds by Federal Reserve Lower Discount Rate Rate at which banks may borrow from the Federal Reserve Lower Required Reserve Ratio,Tools of Expansionary Monetary Policy,Recently Employed Tools: Quantitative Easing Purchasing of various financial asset
24、s with newly created money. Operation Twist Lowering of long-term interest rates by selling shorter-term bonds and buying longer-term bonds. Aim is to encourage long-term investment.,Limits to Monetary Policy,Banks keeping excess reserves. Leakage of funds to circulating currency. Time lag in making
25、 new loans, reducing immediate effectiveness Inelasticity of investment and other interest-rate expenditures,2012 Free Response,2012 Free Response Answer,$10,000/$100,000 = .10 or 10%Reduced by $5,000 None. While demand deposits fall by $5,000, circulating cash increases by $5,000. Since demand depo
26、sits are now $95,000; $9,500 must be kept as cash reserves. Reserves are now $10,000 ($15,000 - $5,000). So the value of excess reserves is $500. By borrowing from other banks at the Federal Funds Rate or from the Federal Reserve at the discount rate,2011 Free Response,2011 Free Response Answer,2010
27、 Free Response,A drop in credit card fees causes people to use credit cards more often for transactions and demand less money. Using a correctly labeled graph of the money market, show the nominal interest rate will be affected. Given the interest rate change in part (a), what will happen to bond pr
28、ices in the short run? Given the interest rate change in part (a), what will happen to price level in the short run? Explain. Identify an open-market operation the Federal Reserve could use to keep the nominal interest rate constant at the level that existed before the drop in credit card fees. Expl
29、ain.,2010 Free Response Answer,2009 Free Response Form B,2009 Form B Answer,2009 Form B Answer,2009 Free Response,2009 Free Response Answer,如果你对本课件的内容感兴趣，或者 对AP课程和考试有什么问题可以关注并咨询:微信公众号：AP和国际课程资深顾问傅莹 微博：国际课程顾问傅莹 博客：http:/ 微信：fuyinglaoshi(二维码),All data and graphs taken from:Fed FRED http:/research.stlouisfed.org/fred2/,
