macro

Whatever asset used in transaction; varies over time

Money demand is demand for real balances –the number of Taka divided by the price level

The demand for money rises with higher income and falls with higher interest rates.
What Money Is and Why It’s Important
Without money, trade would require barter, the exchange of one good or service for another.
Every transaction would require a double coincidence of wants – the unlikely occurrence that two people each have a good the other wants.
Most people would have to spend time searching for others to trade with – a huge waste of resources.
This searching is unnecessary with money, the set of assets that people regularly use to buy g&s from other people.
The 3 Kinds of Money
Commodity money:  takes the form of a commodity with intrinsic value
Examples:  gold coins, cigarettes in POW camps
        Bank Notes:

FUNCTIONS OF MONEY
DEMAND FOR MONEY
FACTORS INFLUENCING DEMAND
Price level: hold less when rises.

Income: hold more when earn more.

Interest Rate: hold less when rate rises.

Credit Availability: hold less money
MONETARY AGGREGATES



















EQUATION OF EXCHANGE
MV = PQ where

M = money supply (currency, demand deposits and checkable deposits)

V = number of times each year a dollar in money supply is spent.

MV = total spending = GNP.

P = Average price level of all goods and services in a year.

Q = Quantity of goods and services sold in a year.

PQ = total money received by sellers from sales of output = GNP.

So, MV = PQ


Suppose M is $900 billion and V is 9.
Thus MV = PQ or 900 X 9 =PQ.
Assume P = $81, then Q must be 100 to make equation equal.
Measures of the BD Money Supply
M1=Narrow Money =  currency, demand deposits, traveler’s checks, and other checkable deposits. 
    M1 = Tk.66,427 Crores (2008/09)
M2=Broad Money=  everything in M1 plus savings deposits, small time deposits, money market mutual funds, and a few minor categories.
    M2 = Tk.296500 crores (2008/09)