Menger-principle of eco Bawerk: Capital & interest Hayek: individualism & eco order Rothbard: Man Eco & state M1=C+D+TC M2=M1+SD+TD+MMMFindividual MB=C+R M1/M2=MB M1=Eco G= T +CHGinBonds+CHGinMB Sweep Programs: shift of check deposits to MMDAs avoid reserve requirements add income to customer S will P; S will P /D will P; D will /Scarcity implies price; price implies rationing.() D will () S over time/Change isn’t in isolation:D(here) will D(there) PPM = 1/(price level) Real bills doctrine – managing liquidity risk Shiftability theory – managing credit risk Anticipated income/ Conversion of funds- managing interest rate risk Gap Management – managing profit Role of the Fed: The Fed buys/sells Treasury securities This raises/lowers bank reserves. This raises/lowers excess reserves. This causes banks to increase/decrease loans. This will raise/lower measured money,
M1 total reserves = RR + ER, RR = Required Reserves = rrD•D where rrD is the required reserve ratio (0 to 1), D is the level of (demand) deposits MB = C + TR, C = currency = c •D where c is the currency ratio.
MB = c •D + rrD•D + e •D = (c+rrD+e) •D,
M1 = C + D = c •D + D = (1+c) •D, Solve to get M1 = [(c+1)/(c+rrD+e)] • MB, CHNGinM1 = [(1+c)/(c+rrD+e)] • CHNGEinMB, Money multipliers are derived from the data: M1/MB = m*1 and M2/MB = m*2 Central Banking: Government privilege or control Monopoly on note issue Tend to centralize holding of gold. Can prevent individual bank collapse. Will expand (contract) the MS by expanding (contracting) bank reserve deposits. Assuming banks are “fully loaned up” the MS is: Notes in circulation + (1/rr)*(Bank reserves, CB & Reserves: Reserves and desire for cash (public) move in opposite directions. Some factors cash demand: seasonal spending and underground/illegal transactions .Some factors cash demand: credit & debit cards and