Lecture 7 : Money, Banking and Monetary Control

Learning Tasks/Activities/Assessment 7

Answer the following questions:

1. Briefly explain the three general functions of money.

2. If the BSP wants to contract money supply, what measures or instruments of monetary control should it adopt? What about if it wants to expand money supply?

Lecture 8 : Equilibrium in the Money Market

Learning Tasks/Activities/Assessment 8

1) If the money supply equals P250, the transactions-precautionary demand for money (M t ) is 0.20Y, and the speculative demand for money (M a) is P150 - 500r,

a) what quantity of money is available for speculative balances if the income level equals P900?

b) find the rate of interest where there is equilibrium between the supply of money for speculative balances and the speculative demand for money. 2) Derive the LM equation if: Ms = 200; Mt = 0.25Y; Ma = 40 - 500r

Lecture 9 : Simultaneous Equilibrium in the Product and Money Market

Learning Tasks/Activities/Assessment 9

Given: A three-sector economy model where

C = P90 + 0.625 Yd, Money supply Ms = 180

I = P150 - 100r, Mt = 0,.25Y G=10.

Ma = 50 - 200r, IS: Y = C + I + G

LM: Y = 520 + 800r

Note: Equilibrium in the money and commodity markets is found by simultaneous solution of the IS and LM equations (IS = LM)

a) Solve for the rate of interest (r).

b) Find equilibrium Y.

c) Solve for C and I.

d) Solve for Mt and Ma

Learning Tasks/Activities/Assessment 10 Answer the following questions:

1. Explain how an increase in government expenditures affect aggregate demand.

2. Explain what will happen to aggregate supply if the labor force increases.