Unit 4 03/09/16

Unit 4 03/09/16

Time Value of Money 

• Is a dollar today worth more than a dollar tomorrow?
  • Yes
   
• Why? 
• Because of inflation & opportunity cost 

• Let V = future value of money 
• P = Present value of money 
• r = real inflation rate (nominal rate - inflation rate)
• N = years
• K = number of times interest is credited per year.

• The simple interest formula 
• V = (1 + r)^n * P

• The compound interest formula
• V = (1 + r/k)^nk * P  

• Demand have an inverse relationship between nominal interest rates and the quantity of money demanded.
• When the interest rate increase, the money demand decrease.
• When the interest rate decrease, the money demand increase.

The Demand for money

 

• Money demand shifter 
• Change in price level
• Change in income
• Change Taxation that affect investment 

the money supply

•  How does this affect AD
  • Money supply Increase - Interest rate decrease - Investment increase - AD increase 
  • Money supply decrease - Interest rate increase - Investment decrease - AD decrease  
  Financial Asset
  Stocks & Bond 
  Future benefit
  What you own
  
  
  • Stock - financial asset that convey ownership in company.
  • Bond - promise to pay a certain amount of money + interest in the future

   

  What Bank Do 

  • A bank is a financial intermediary
  • Uses liquid assets (i.e. bank deposit) to financial the investment of borrowers.

  • Process is known as Factional Reserve Banking.
  • A system in which depository institution hold liquid assets less than the amount of deposits

Unit 4 03/04/16

Unit 4 03/04/16

• Uses of money
• Medium of exchange: is what people trade for goods and services.
• Unit of account: It establish economic worth in the exchange process.
• Store of value: Money hold is value over a period of time, where as product may not

• Type of Money
• Commodity Money: Involves the use of an actual good in place of money.
• EX: Gold coin, Silver coins

• Representative Money: its a paper money back by something tangible that give it value.
• EX: I    O   U

• Fiat Money: there money because the government sad so.

• Characteristic of Money 
• Durable 
• Portable
• Divisible
• Uniform
• Acceptable

• M1 money supply: currency (coin & cash), check-able deposit (demand deposit), traveler check.
• 75% money will come from M1
• It the most liquid able (easy to break down)

• M2 money supply: M1 money + saving account + deposit held by banks out side of the U.S.
• Not really liquid able (easy to break down)

• M3 money supply: M2 + certificate of deposit they held by private institution.
• If you put your money out to early, you be penalize.

Carmen's Lesson

Economics Lesson: Question V

https://youtu.be/3IWcbhn_ZiU