Course Description

The role of money in the economic system is emphasized along with current monetary theories. Also examined are the purpose, structure and regulations of the chartered banks and other financial
institutions. By monitoring developments in the money market, especially changes in key interest rates, students may assess monetary initiatives of the Bank of Canada.

Course Focus and Scope

This course will closely follow the required textbook and will consist of three sections: money, banking , and current topics in monetary economics.

The first section of the course (money) will develop a microeconomic foundation of money that focuses on the decisions of rational, forward-looking individuals. The theoretical model will be used to
study the link between monetary policy and individual decision-making, and the resulting effect on macroeconomic variables such as inflation and output. Topics include money as a medium of
exchange, the efficiency of money, and optimal monetary policy with a growing economy.

The second section of the course (banking) will introduce banks into our theoretical framework to study the interaction between the central bank, chartered banks, and individuals in the economy. Topics
include the role of banks as liquidity providers, central banking and the money supply, and banks as insurance providers.

The third section of the course (topics) will present and discuss recent topics and questions in monetary economics. Topics include the emergence of alternative monetary policy, central bank digital
currency (CBDC), and monetary policy in recent recessions. While this part of the course will focus more on practical issues in monetary economics, each topic will be studied within the context of the
models developed in the first two sections.

Course Learning Outcomes

Upon the successful completion of this course, students will be able to:

Write down a theoretical model of money and derive its predictions

Interpret the predictions of a theoretical model of money and relate them to real-world examples
Consider extensions to the baseline model of money and derive its predictions
Write down and derive the predictions of a model of money and banking
Explain the multi-functional role of banks in the economy
Interpret the results of a theoretical model of money and banking and relate the predictions to real-world examples
Explain the role of central banks in the economy, their relationship to chartered banks, and how monetary policy is implemented
Consider novel questions in monetary economics or recently implemented monetary policies and form a view on the potential effect of the policy using the theoretical model

Course Schedule
Week 1 (May 6, 2024)

Module 1
Trade Without Money: The Role of Record Keeping

Topics
Review of Consumer Behaviour: Preferences, Budget Constraint, Utility Maximization
The Overlapping Generations (OLG) Environment
The Economic Problem
The Planner’s Problem and the Golden Rule Allocation

Learning Objectives
By successfully completing this module, you should be able to:

Explain the role of model monetary economies in analyzing and predicting important macroeconomic variables.
Explain the assumptions and the main features of the Overlapping Generations Model.
Describe the Golden Rule allocation.
Analyze the record keeping equilibrium and determine if it reaches the Golden Rule.

Readings
Required Readings
1. Study the online Module 1
2. Chapter 1 in the course textbook

Recommended Readings
To review Consumer Theory in depth, see any intermediate microeconomics textbook. Some suggestions include: (Varian H., 2019) Intermediate Microeconomics: A Modern Approach, 10th edition,
and (Besanko and Braeutigam. 2020), Microeconomics, 6th edition.

Assignments
Module 1 Discussion. See Module Discussion page in this module for details.
Start working on Problem Set #1 due by the end of module week 2. The Problem Set is in the “Course Materials” section in D2L.
Term paper assignment issued, due by the end of module week 11.

Tests/Exams
None
 Week 2 (May 11, 2024)

Module 2
A Simple Model of Money

Topics
No Record Keeping Model Economy
Decentralized Solutions
Finding the Demand for Fiat Money
Assessing the Equilibrium: Is It the Golden Rule?
A Monetary Equilibrium with a Growing Economy

Learning Objectives
By successfully completing this module, you should be able to:

Derive a simple OLG model and incorporate a friction to determine the equilibrium in the decentralized economy.
Determine the equilibrium without money and with money in the model economy.
Adapt the model to analyze the equilibrium in which money has a positive value in all future periods.
Determine if the monetary equilibrium is the Golden Rule.
Adapt the model to analyze the equilibrium in a growing economy.

Readings
Required Readings
1. Study the online Module 2
2. Chapter 2 in the required textbook

Recommended Readings
Read the Week 2 Material posted in the “Weekly Readings” folder in the “Course Materials” section in D2L.

Assignments
Module 2 Discussion. See Module Discussion page in this module for details.
Submit Problem Set #1 due by the end of this module week. The Problem Set is in the “Course Materials” section in D2L.

Tests/Exams
None

Week 3 (May 18, 2024)

Module 3
Inflation

Topics
Expansion of Money Supply in a Simple OLG Model
The Inefficiency of Inflation
The Golden Rule Monetary Policy in a Growing Economy
Financing Government Purchases: Seigniorage and Its Limits

Learning Objectives
By successfully completing this module, you should be able to:

Explain the effects of a changing supply of fiat money in the overlapping generations (OLG) framework.
Conclude the inefficiency of inflation based on the OLG monetary equilibrium.
Analyze the effects of an increase in the fiat money supply in a growing economy.
Analyze the effect of a monetary policy to fix the price level.
Explain how government finances purchases through seigniorage, assess the welfare effects and the limitations of such a policy.

Readings
Required Readings
1. Study the online Module 3
2. Chapter 4 in the required textbook

Recommended Readings
Read the Week 3 Material posted in the “Weekly Readings” folder in the “Course Materials” section in D2L.
Assignments
Module 3 Discussion. See Module Discussion page in this module for details.
Start working on Problem Set #2 due by the end of module week 4. The Problem Set is in the “Course Materials” section in D2L.

Tests/Exams
None

Week 4 (May 25, 2024)

Module 4
Price Surprises

Topics
Empirical evidence of the relationship between unemployment and inflation
The Lucas Model
Nonrandom Inflation
Random Monetary Policy
The Lucas Critique
Optimal Monetary Policy

Learning Objectives
By successfully completing this module, you should be able to:

Analyze the Phillips curve to observe how correlation between unemployment and inflation evolved over time.
Set up a simplified version of Lucas’ model and use it to analyze the impact of anticipated/non anticipated inflation on output.
Understand the Lucas Critique and discuss the importance of evaluating government policies based on a theoretical model rather than historical data.
Apply the model presented in this chapter to the discussion of optimal monetary policy.

Readings
Required Readings
1. Study the online Module 4
2. Chapter 6 in the required textbook

Recommended Readings
Read the Week 4 Material posted in the “Weekly Readings” folder in the “Course Materials” section in D2L.

Assignments
Module 4 Discussion. See Module Discussion page in this module for details.
Submit Problem Set #2 due by the end of this module week. The Problem Set is in the “Course Materials” section in D2L.
Announce the teams and the term paper topics in the “Teams and Term Paper Topics” discussion forum.

Tests/Exams
None

Week 5 (June 1, 2024)

Module 5
Capital, Liquidity, and Financial Intermediation

Topics
Capital as an Alternative to Holding Fiat Money
The Tobin Effect
When Fiat Money and Other Assets are not Substitutes
Risk
Money as a Liquid Asset
The Business of Banking

Learning Objectives
By successfully completing this module, you should be able to:

Introduce capital into the OLG model to assess how the presence of an alternative asset affects people’s willingness to hold money.
Demonstrate that in an economy where capital and fiat money coexist as substitutes, the rate of return of the two assets should be equal.
Understand the Tobin effect: the substitution of private capital for fiat money in response to an increase in anticipated inflation.
 Analyze the effect of anticipated inflation when the rate of return on fiat money is lower than that of other assets, and when the returns to capital
Use an expanded OLG model to understand the rates of return of liquid and illiquid assets.
Illustrate how the rate of return differences constitute an incentive for the development of financial intermediaries.

Readings
Required Readings
1. Study the online module 5
2. Chapter 7 in the required textbook
3. Chapter 8 in the required textbook

Recommended Readings
Read the Week 5 Material posted in the “Weekly Readings” folder in the “Course Materials” section in D2L.

Assignments
Module 5 Discussion. See Module Discussion page in this module for details.
Start working on Problem Set #3 due by the end of module week 6. The Problem Set is in the “Course Materials” section in D2L.

Tests/Exams
None

Week 6 (June 8, 2024)

Module 6
Central Banking and the Money Supply

Topics
Legal Restrictions on Financial Intermediation
Reserve Requirements
Central Bank Definitions of Money
Central Bank Lending

Learning Objectives
By successfully completing this module, you should be able to:

Use an OLG model to analyze the effects that changes in the reserve requirements and the monetary base have on the key economic variables.
Describe the monetary aggregates as defined by the Bank of Canada and the Federal Reserve.
Analyze the effects of a limited and unlimited central bank lending on the key economic variables.
Discuss the central bank lending policies in Canada and the United States.

Readings
Required Readings
1. Study the online Module 6.
2. Chapter 9 in the required textbook

Recommended Readings
Read the Week 6 Material posted in the “Weekly Readings” folder in the “Course Materials” section in D2L.

Assignments
Module 6 Discussion. See Module Discussion page in this module for details.
Submit Problem Set #3 due by the end of this module week. The Problem Set is in the “Course Materials” section in D2L.

Tests/Exams
None

Week 7 (June 15, 2024)

Module 7
Money Stock Fluctuations

Topics
The Correlation Between Money and Output
A Model of Currency and Deposits
Linking Output and the Money Multiplier
 Can Monetary Stabilization Policies Help Alleviate Fluctuations in Output?
Tobin Effect Revisited

Learning Objectives
By successfully completing this module, you should be able to:

Discuss the positive correlation between money and output observed in the real world.
Develop a model economy in which people hold currency and deposits and use it to analyze the link between the money multiplier and output.
Distinguish between correlation and causality of the money stock and output.
Adapt the model to illustrate how the omission of important variables alter the empirical relationship between money stock and output.
Discuss the efficiency of a monetary policy in stabilizing output in an economy.
Revisit Tobin Effect introduced in Module 5 to discuss the effect of anticipated inflation on capital and output.

Readings
Required Readings
1. Study the online Module 7
2. Chapter 10 in the required textbook

Recommended Readings
Read the Week 7 Material posted in the “Weekly Readings” folder in the “Course Materials” section in D2L.

Assignments
Module 7 Discussion. See Module Discussion page in this module for details.
Start working on Problem Set #4 due by the end of module week 8. The Problem Set is in the “Course Materials” section in D2L.

Tests/Exams
None

Week 8 (June 22, 2024)

Module 8
Fully Backed Central Bank Money

Topics
Paying Interest on Money
A Different Look at the Quantity Theory of Money
Deflation
Currency Boards

Learning Objectives
By successfully completing this module, you should be able to:

Derive an OLG model in which money is backed by capital.

Analyze the effect on the price level of an increase in the nominal stock of money.
Determine if changes in the money supply result in proportional changes in the price level in Canada.
Analyze the effect of deflation on the rate of return of fiat money.
Explain how currency boards can avoid speculative attacks by backing its currency with interest bearing assets.

Readings
Required Readings
1. Study the online Module 8
2. Chapter 11 in the required textbook

Recommended Readings
Read the Week 8 Material posted in the “Weekly Readings” folder in the “Course Materials” section in D2L.

Assignments
Module 8 Discussion. See Module Discussion page in this module for details.
Submit Problem Set #4 due by the end of this module week. The Problem Set is in the “Course Materials” section in D2L.

Tests/Exams
None

Week 9 (June 29, 2024)

Module 9
Bank Risk, Liquidity Risk, and Panic

Topics
Demand Deposit Banking
Bank Runs
Preventing Panics
Bank Failures
The Moral Hazard of Deposit Insurance
The Importance of Capital Requirements
Money with Limited Communication
Optimal Consumption Bundles
Bank Risk
Money, Banking and the Zero Lower Bound

Learning Objectives
By successfully completing this module, you should be able to:

Understand why banks offer demand deposits.

Explain what bank runs are and how they can be prevented.
Explain the moral hazard problem of deposit insurance and illustrate how government can limit the risk taking.
Build a model economy to explain how money withdrawals are associated with bank panics.
Analyze the optimal consumption bundles to determine the efficient quantity of consumption and the optimal monetary policy that maximizes the welfare.
Extend the basic model to show how uncertainty leads to bank panic.
Explain how banks respond to unexpected liquidity demand and understand the role of regulatory structure in bank panics.
Apply the basic economic model to explain some features of the 2007 Financial Crisis.

Readings
Required Readings
1. Study the online Module 9
2. Chapters 13 and 14 in the required textbook

Recommended Readings
Read the Week 9 Material posted in the “Weekly Readings” folder in the “Course Materials” section.

Assignments
Module 9 Discussion. See Module Discussion page in this module for details.
Start working on Problem Set #5 due by the end of Week 10. The Problem Set is in the "Course Materials" section in D2L.

Tests/Exams
None

Week 10 (July 6, 2024)

Module 10
Deficits and the National Debt

Topics
High Denomination Government Debt
Continual Debt Issue
The Burden of National Debt
Open Market Operations
Political Strategy and National Debt

Learning Objectives
By successfully completing this module, you should be able to:

Develop a simple model to illustrate how government can raise revenue from the bonds without losing fiat money seigniorage.
Illustrate and assess the feasibility of rolling over government debt.
Use the government budget constraint to analyze the outcomes of government’s intertemporal spending.
Explain the effects of an increase in money supply through open market purchases of government debt.
Explain how today’s political strategies regarding fiscal and monetary policies could alter future political strategy choices.

Readings
Required Readings
1. Study the online Module 10
2. Chapter 15 in the required textbook

Recommended Readings
Read the Week 10 Material posted in the “Weekly Readings” folder in the “Course Materials” section in D2L.

Assignments
Module 10 Discussion. See Module Discussion page in this module for details.
Submit Problem Set #5 due by the end of this module week. The Problem Set is in the “Course Materials” section in D2L.
Term paper assignment due by the end of this module week.

Tests/Exams
None

Week 11 (July 13, 2024)

Module 11
Savings and Investment

Topics
Savings Decisions
Effects of Taxes on Consumption and Savings
Social Security

Learning Objectives
By successfully completing this module, you should be able to:

Analyze how individuals choose their level of saving in the context of the overlapping generations model (OLG) model.
Apply findings of the overlapping generations model (OLG) to study the effects of tax policies on consumption and savings.
Adapt the overlapping generations model to analyze the effects of government-run pension plans and the social insurance program on consumption and welfare.

Readings
Required Readings
1. Study online Module 11
2. Chapter 16 in the required textbook

Recommended Readings
Read the Week 11 Material posted in the “Weekly Readings” folder in the “Course Materials” section in D2L.

Assignments
Module 11 Discussion. See Module Discussion page in this module for details.
Start working on Problem Set #6 due by the end of module week 12. The Problem Set is in the “Course Materials” section in D2L.

Tests/Exams
None

Week 12 (July 20, 2024)

Module 12
The Effect of National Debt on Capital and Savings

Topics
The National Debt and the Crowding Out of Capital
Neutral Government Debt
Fiat Money and the Crowding Out of Capital
Infinitely Lived Agents

Learning Objectives
By successfully completing this module, you should be able to:

Use the OLG model economy developed in Module 11 to analyze the effect of an increase in the stock of bonds on people’s capital investment decisions.
Adapt the model to show an example of a deficit that does not crowd out capital.
Analyze how changes in fiat money crowd out capital.
 Develop a model of infinitely lived people to analyze the effects of national debt and money balances on wealth and capital.

Readings
Required Readings
1. Study the online Module 12
2. Chapter 17 in the required textbook

Recommended Readings
Read the Week 12 Material posted in the “Weekly Readings” folder in the “Course Materials” section in D2L.

Assignments
Module 12 Discussion. See Module Discussion page in this module for details.
Submit Problem Set #6 due by the end of this module week. The Problem Set is in the “Course Materials” section in D2L.

Tests/Exams
None

Week 13 (July 27, 2024)

Module 13
Final Exam

Assignments
None

Tests/Exams
Final Exam

Course Textbooks and Materials

Required Textbook(s)
Please view a list of the required materials for this course and instructions on how to order them from the Toronto Metropolitan University Bookstore.

Recommended Readings or Resources

See the Course Materials section in D2L.

Teaching Methods
The course is based on a set of 12 modules, one for each week of the course.

Students will interact with the instructor to:

Gain clarification of theoretical models, derivations, results and interpretations.

Answer questions related to motivation of models and practical relevance of models.
Answer questions related to analysis of recently implemented monetary policies.
Choose a topic for the term paper and obtain guidance in collecting and analyzing data and structuring the paper.

The course will use several teaching methods:

Text and notes for introduction of theoretical models, derivation of results, and interpretation
Videos and audio recordings to explain details and derivations of theoretical results
Historical anecdotes and examples to provide empirical relevance for theoretical models
Current examples of policies implemented by central banks (e.g., Bank of Canada and Federal Reserve)
Historical economic data and charts to motivate questions and models being developed and test the predictions of theoretical models

Students should rely on each other to:

Discuss initial questions related to results in the notes, text and video/audio recordings
Discuss and comment on classmates’ posts in the weekly discussion board forums
Research and write the term paper in teams
Discuss broader questions related to monetary policy and recent policies undertaken by central banks (such as those implemented after the start of the course)

Marking Scheme
Assessment Course Weight (in %) Week Assigned Week Due

Module Discussions 13% Weekly Weekly

Week 1 1% 1 2
 Week 2 1% 2 3

Week 3 1% 3 4

Week 4 1% 4 5

Week 5 1% 5 6

Week 6 1% 6 7

Week 7 1% 7 8

Week 8 1% 8 9

Week 9 1% 9 10

Week 10 2% 10 11

Week 11 1% 11 12

Week 12 1% 12 13

Problem Sets 12% 1, 3, 5, 7, 9, 11 2, 4, 6, 8, 10, 12

Term Paper 25% 1 10

Final Exam 50% 13 13

Total 100%

For more information about exams, please see Toronto Metropolitan University’s Senate Policy on Examinations No. 135.

For more information about grade appeals and reassessments, please see Toronto Metropolitan University’s Senate Policy on Undergraduate Academic Consideration and Appeals no. 134.

Assignment Descriptions
Term Paper
You are required to write a short research paper on a chosen topic that must be approved by your instructor. You can choose between a case study or an empirical study. For an empirical study you
have to use a statistical package of your choice (e.g., Stata, SAS, SPlus, R, EViews, Excel, etc.). Please see the “Term Paper Guidelines” document in the “Assignments” section of the course
website for details.

Problem Sets
Six problem sets are assigned, one every other week, starting on Week 1. Problem Sets are posted in the “Course materials” section. Problems are based on the theoretical material presented in the
modules.

Discussion Boards & Online Participation Details

Students will be assessed on the basis of the frequency and quality of their contributions, bringing the latest information to the attention of the class.

You should post your contributions to the weekly discussion topics in a meaningful and timely manner (please see the “Marking Scheme” in the “Evaluation” section). Your posts should be original, and
not a copy and paste from an internet source. When required, students need to plot their own charts and upload a file with their work-data and chart.

All discussion topics carry the same weight within a module. For example, if there are two discussion topics in a Module counting 1% towards the final grade, each topic is worth 0.5%.

Students’ participation to the weekly discussion board is assessed based on the following evaluation criteria:

Grade
Weekly/Timely Contributions Description
Assigned

Informative and Provocative Responses go beyond simply answering the questions; demonstrate depth of knowledge and reasoning; stimulate further thought and Full grade
discussion

Superficial Responses provide some of the content required by the questions but often lack analysis, depth of knowledge, or reasoning Half Grade

None No responses provided to the questions within the associated timeframes 0

No marks will be allocated to late

postings.

Final Exam
The final exam is written online in D2L. It consists of Short Answer Questions and Problems. Details on format and number of questions will be posted in D2L.

Participation Details
The online discussion board is an excellent way to enhance your learning and practice critical thinking. Discussing content in an online environment allows you to reflect before contributing and take time
to consider other student postings. By providing opportunities for networking and community building, the discussion board can reduce the feeling of isolation that sometimes occurs in online courses.

Etiquette Guidelines
Treat online forums as academic, public-speaking spaces. Post comments in the same way you would speak in a traditional classroom – politely and respectfully. Forums are a place for discussion
and debate about the content you are studying. They are a way of getting to know and interact with your peers and instructor(s) and share your views and ideas
Respect diversity. There will be multiple perspectives and experiences shared relating to course content and subject matter practice. You may disagree with someone’s perspective or have a
different one, but positioning any perspective as “right” or “wrong” should be avoided.
 The instructor, possessing a depth of knowledge in the course subject, will offer guidance and support as necessary to rectify any inaccuracies in forums.
Read and respond to peer postings. If someone comments on your thread or asks a question, monitor and reply.
Keep criticism constructive and positive. Reference course readings and content to make suggestions or recommendations.
In online discussions, students are expected to comply with Toronto Metropolitan University’s Senate Policy on the Student Code of Non-Academic Conduct No. 61. Inappropriate forum behaviour
should be reported to the instructor immediately. Allow the instructor time to respond and take action. Do not engage an inappropriate peer directly.

Missed Term Work or Examinations and Course Repeats

Missed Term Work or Examinations
Students are expected to complete all assignments, tests, and exams within the time frames and by the dates indicated in this outline. Exemption or deferral of an assignment, term test, or final
examination is only permitted for a medical or personal emergency or religious observance.

Health Certificates
If you will miss an assignment, test or examination due to illness, you must submit a health certificate and an Academic Consideration Request form within three working days of the missed deadline,
test, or examination.

If you are a full-time or part-time degree student, then you submit your medical documentation to your own program school/department. If you are a certificate or non-certificate student, then submit your
documentation to the staff at the Chang School. Your continuing education contract lecturer can no longer accept your documentation. If you have questions, please contact The Chang School.

For more information, please consult Toronto Metropolitan University’s Senate Policy on Undergraduate Academic Consideration and Appeals no. 134.

Religious, Indigenous, and Spiritual Observance

For accommodations based on medical or religious, Aboriginal, and spiritual observance reasons, a Request for Accommodation of Student Religious, Aboriginal and Spiritual Observance form and an
Academic Consideration Request form must be submitted within the first two weeks of class or, for a final examination, within two weeks of the posting of the examination schedule.

Official forms may be downloaded or picked up from The Chang School at Heaslip House, 297 Victoria Street, Main Floor.

For more information, please consult Toronto Metropolitan University’s Senate Policy on Accommodation of Student Religious, Aboriginal and Spiritual Observance No. 150.

Course Repeats
Senate GPA Policy prevents students from taking a course more than three times. For the complete GPA Policy, see Toronto Metropolitan University’s Senate Policy on Undergraduate Grading,
Promotion, and Academic Standing Policy No. 46.

Plagiarism
The Toronto Metropolitan University Student Code of Academic Conduct defines plagiarism and the sanctions against students who plagiarize. All students are strongly encouraged to go to the Toronto
Metropolitan University Academic Integrity Office website and complete the tutorial on plagiarism.

For more information, please consult Toronto Metropolitan University’s Senate Policy on Academic Integrity No. 60, 60-1, 60-2 and 61.

Use of the Plagiarism-Detection Service

The work submitted by students in this course will be submitted to Turnitin. Students who do not want their work submitted to this plagiarism-detection service must consult with the instructor to make
alternate arrangements by the end of the second module.

Departmental Policies and Course Practices

To learn more about course management expectations, please review Toronto Metropolitan University’s Senate Policy on Course Management No.166.

Accessibility
Per Toronto Metropolitan University’s Senate Policy for Academic Accommodation of Students with Disabilities No. 159, the University will provide academic accommodations for students with disabilities
in accordance with the Ontario Human Rights Code and the Accessibility for Ontarians with Disabilities Act.

If such accommodation is required, please contact Academic Accommodation Support, preferably before the start of the course to allow for time to make any necessary arrangements.

Student Email
All students in full- and part-time graduate and undergraduate degree programs and all continuing education students are required to activate and maintain their Toronto Metropolitan University online
identity at torontomu.ca/accounts in order to regularly access Toronto Metropolitan University’s email, MyServiceHub, the my.torontomu.ca portal and learning system, and other systems by which they
will receive official university communications.

Student Support
If you are experiencing technical or administrative issues with your course, help is available from the Chang School Client Services team via email at ce@torontomu.ca or by phone at (416) 979-5035.
Please refer to the Chang School Client Services website for operating hours and other information.