Money Supply Introduction

Answer the following:

1. List 3 forms of money used before the era of paper
bills and coins/
2. What is the nature of the first business of
Goldsmith?
3. List two innovations/changes he made to the nature
of his business.
4. Give the main reason why his business ended.
5. List 2 outcomes on what had happen to the
economy after the business of Goldsmith had closed
6. Is it possible to have run out of the bank given the
present situation?

How will money supply changes in the

circulation?
1. Reserve Requirement
- private loaning

2. Discount Rate
- bank loaning
3. Open Market Operation
-government loaning
- buying and selling of bonds

Demand for money

1. Transactional demand- exchange
2. Precautionary demand
3. speculative demand
Sample instruments used for transaction, precautions, and
speculation:
ATM card
Credit Card
Time deposit
Dollar Deposit
Checks

Supply of money
M1 currency in circulation (or currency outside depository
corporations) and peso demand deposits.
M2 M1 plus peso savings and time deposits.
M3 M2 plus peso deposit substitutes, such as promissory
notes and commercial papers (i.e., securities other than
shares included in broad money).
M4 - M3 plus other deposits in foreign currency.
Identify which among these instruments is not considered as
part of Money Supply?
ATM card
Credit Card
Time deposit
Dollar Deposit
Checks

Changing money supply

1. reserve requirement
lending capacity may also affect RR
creation of money
- deposit-loans/ lending
With 100B deposit, how much change in money supply will
possibly occur?
reserve requirement=
required reserve ratio x total deposits
excess reserve =
total reserve - reserve requirement
potential deposit creation =
excess reserve x money multiplier
money multiplier =
1/required reserve

Changing money supply

2. Open-market operation
3. Discount rate

Assignment
Refer to the blogspot