布兰查德宏观经济学 第四版 第04章课件

布兰查德宏观经济学第四版第04章课件TheDemandforMoneyTheFed(shortforFederalReserveBank)istheU.S.centralbank.Money,whichcanbeusedfortransactions,paysnointerest.Therearetwotypesofmoney:currencyandcheckabledeposits.Bonds,

payapositiveinterestrate,i,buttheycannotbeusedfortransactions.4-12TheDemandforMoneyTheFed(sTheDemandforMoneyTheproportionsofmoneyandbondsyouwishtoholddependmainlyontwovariables:YourleveloftransactionsTheinterestrateonbonds

Moneymarketfundspooltogetherthefundsofmanypeopleandusethesefundstobuybonds–typically,governmentbonds.3TheDemandforMoneyTheproporIncomeiswhatyouearnfromworkingpluswhatyoureceiveininterestanddividends.Itisaflow—thatis,itisexpressedperunitoftime.Savingisthatpartofafter-taxincomethatisnotspent.Itisalsoaflow.Savingsissometimesusedasasynonymforwealth(atermwewillnotuseinthiscourse).SemanticTraps:Money,Income,andWealth4IncomeiswhatyouearnfromwYourfinancialwealth,orsimplywealth,isthevalueofallyourfinancialassetsminusallyourfinancialliabilities.Wealthisastockvariable—measuredatagivenpointintime.Investmentisatermeconomistsreserveforthepurchaseofnewcapitalgoods,suchasmachines,plants,orofficebuildings.Thepurchaseofsharesofstockorotherfinancialassetsisfinancialinvestment.SemanticTraps:Money,Income,andWealth5Yourfinancialwealth,orsimpThedemandformoney:increasesinproportiontonominalincome($Y),anddependsnegativelyontheinterestrate(through

L(i),notethenegativesignunderneathL(i)).6Thedemandformoney:6DerivingtheDemandforMoneyTheDemandforMoneyFigure4-1Foragivenlevelofnominalincome,alowerinterestrateincreasesthedemandformoney.Atagiveninterestrate,anincreaseinnominalincomeshiftsthedemandformoneytotheright.7DerivingtheDemandforMoneyTTheDemandforMoneyandtheInterestRate:TheEvidenceUsingthisequation,youcanfindouthowmuchthedemandformoneyrespondstochangesintheinterestrate(throughL(i)).BecauseL(i)isadecreasingfunctionoftheinterestratei,thisequationsays:Whentheinterestrateislow,thenL(i)ishigh,sotheratioofmoneydemandtonominalincomeshouldbehigh.Whentheinterestrateishigh,thenL(i)islow,sotheratioofmoneydemandtonominalincomeshouldbelow.=L(i)Md

$Y8TheDemandforMoneyandtheIFigure4-1TheRatioofMoneyDemandtoNominalIncomeandtheInterestRatesince1960Theratioofmoneytonominalincomehasdecreasedovertime.Leavingasidethistrend,theinterestrateandtheratioofmoneytonominalincometypicallymoveinoppositedirections.TheDemandforMoneyandtheInterestRate:TheEvidence9Figure4-1TheRatioofMoneyFigure4-1suggeststwomainconclusions:Thefirstisthattherehasbeenalargedeclineintheratioofmoneydemandtonominalincomesince1960.Economistssometimesrefertotheinverseoftheratioofmoneydemandtonominalincome($Y/Md)asthevelocityofmoney.Thesecondconclusionisthatthereisanegativerelationbetweenyear-to-yearmovementsintheratioofmoneydemandtonominalincomeandyear-to-yearmovementsintheinterestrate.TheDemandforMoneyandtheInterestRate:TheEvidence10Figure4-1suggeststwomainFigure4-2ChangesintheInterestRateVersusChangesintheRatioofMoneyDemandtoNominalIncomesince1960Increasesintheinterestratehavetypicallybeenassociatedwithadecreaseintheratioofmoneytonominalincome,decreasesintheinterestratewithanincreaseinthatratio.Ascatterdiagramisafigureinwhichonevariableisplottedagainstanother.Eachpointinthefigureshowsthevaluesofthesetwovariablesatapointintime.TheDemandforMoneyandtheInterestRate:TheEvidence11Figure4-2ChangesintheIntTheDeterminationof

theInterestRate.iInthissection,weassumethatcheckabledepositsdonotexist–thattheonlymoneyintheeconomyiscurrency.Theroleofbanksassuppliersofmoney(andcheckabledeposits)isintroducedinthenextsection.4-212TheDeterminationof

theInterMoneyDemand,MoneySupply,

andtheEquilibriumInterestRateEquilibriuminfinancialmarketsrequiresthatmoneysupplybeequaltomoney

demand,orthatMs=Md.Thenusingthisequation,theequilibriumconditionis:MoneySupply=MoneydemandThisequilibriumrelationiscalledtheLMrelation.13MoneyDemand,MoneySupply,

anMoneyDemand,MoneySupply,

andtheEquilibriumInterestRateTheinterestratemustbesuchthatthesupplyofmoney(whichisindependentoftheinterestrate)beequaltothedemandformoney(whichdoesdependontheinterestrate).TheDeterminationoftheInterestRateFigure4-214MoneyDemand,MoneySupply,

anMoneyDemand,MoneySupply,

andtheEquilibriumInterestRateAnincreaseinnominalincomeleadstoanincreaseintheinterestrate.TheEffectsofanIncreasein

NominalIncomeontheInterestRateFigure4-315MoneyDemand,MoneySupply,

anMoneyDemand,MoneySupply,

andtheEquilibriumInterestRateFigure4-4Anincreaseinthesupplyofmoneyleadstoadecreaseintheinterestrate.TheEffectsofanIncreaseintheMoneySupplyontheInterestRate16MoneyDemand,MoneySupply,

anOpenMarketOperationsInmoderneconomies,thewaycentralbankschangethesupplyofmoneyisbybuyingorsellingbondsinthebondsmarket,theseactionsarecalledOpen-marketoperations,becausetheytakeplaceinthe“openmarket”forbonds,itisthestandardmethodcentralbanksusetochangethemoneystockinmoderneconomies.Ifthecentralbankbuysbonds,thisoperationiscalledanexpansionaryopenmarketoperationbecausethecentralbankincreases(expands)thesupplyofmoney.Ifthecentralbanksellsbonds,thisoperationiscalledacontractionaryopenmarketoperationbecausethecentralbankdecreases(contracts)thesupplyofmoney.17OpenMarketOperationsInmoderFigure4-5isthebalancesheetofthecentalbank.Theassetofthecentalbankarebondsitholdinitsportfolio(资产组合).Itsliabilitiesarethestockofmoneyintheeconomy.Openmarketoperationsleadtoequalbutcontrarychangeinassetsandliabilities.

18Figure4-5isthebalancesBondPricesandBondYieldsTheBalanceSheetoftheCentralBankandtheEffectsofanExpansionaryOpenMarketOperationFigure4-5Theassetsofthecentralbankarethebondsitholds.Theliabilitiesarethestockofmoneyintheeconomy.Anopenmarketoperationinwhichthecentralbankbuysbondsandissuesmoneyincreasesbothassetsandliabilitiesbythesameamount.19BondPricesandBondYieldsTheBondPricesandBondYieldsYoumustunderstandtherelationbetweentheinterestrateandbondprices:Treasurybills,orT-billsareissuedbytheU.S.governmentpromisingpaymentinayearorless.Infact,whatisdeterminedinbondsmarketsisnotinterestrates,butprices;theinterestrateonabondcanbeinferedfromthepriceofthebond.20BondPricesandBondYieldsYouIfyoubuythebondtodayandholditforayear,therateofreturn(orinterest)onholdinga$100bondforayearis($100-$PB)/$PB.Ifwearegiventheinterestrate,wecanfigureoutthepriceofthebondusingthesameformula.21IfyoubuythebondtodayandChoosingMoneyor

ChoosingtheInterestRate?Adecisionbythecentralbanktolowertheinterestratefromitoi’isequivalenttoincreasingthemoneysupply(throughopenmarketoperationswhichpurchasebondsandatsametimeincreasetheamountofmoneyintheeconomy.).Figure4-4Typically,thecentalbankfirstthinksabouttheinterestrateitwanttoachieveandthenchangethemoneysupplyintheeconomysoastoachieveit.

22ChoosingMoneyor

ChoosingtheSUMMARIZATION:Theinterstrateisdeterminedbytheequalityofsupplyofmoneyandthedemandformoney..Bychangingthesupplyofmoney,thecentralbankcanaffecttheinterestrate.Thecentralbankchangesthesupplyofmoneythroughopen-marketoperationsinbondsmarket,whicharepurchasesorsalesofbondsformoney.open-marketoperationsarethebasictoolsusedbymordencentralbankestoaffectrates.23SUMMARIZATION:23

Inbondsmarketswhatisdeterminedisnotinterestrates,butprices;theinterestrateonabondcanbeinferedfromthepriceofthebond.

Open-marketoperationsinwhichthecentralbankincreasesthemoneysupplybybuyingbondsleadtoanincreaseinthepriceofbonds–equivalently,adecreaseintheinterestrate.Open-marketoperationsinwhichthecentralbankdecreasesthemoneysupplybysellingbondsleadtoandecreaseinthepriceofbonds–equivalently,anincreaseintheinterestrate.2424TheDeterminationof

theInterestRate,IIFinancialintermediariesareinstitutionsthatreceivefundsfrompeopleandfirms,andusethesefundstobuybondsorstocks,ortomakeloanstootherpeopleandfirms.Theassetsoftheseinstitutionsconsistsofthestocksandbondstheyownandloanstheyhavemade.Theirliabilitiesarewhattheyowetothepeopleandfirmsfromwhomtheyhavereceivedfunds.Banksreceivefundsfrompeopleandfirmswhoeitherdepositfundsdirectlyorhavefundssenttotheircheckingaccounts.Theliabilitiesofthebanksareequaltothevalueofthesecheckabledeposits.

(note:thisisjustasimpliedversion,bankhaveothertypesofliabilitiesinadditiontocheckabedeposits.).Bankskeepasreservessomeofthefundstheyreceive.Theyholdthempartlyincashandpartlyinanaccountthebankshaveatthethecentralbank.4-325TheDeterminationof

theInterWhatBanksDoBanksholdreservesforthreereasons:Onanygivenday,somedepositorswithdrawcashfromtheircheckingaccounts,whileothersdepositcashintotheiraccounts.Inthesameway,onanygivenday,peoplewithaccountsatthebankwritecheckstopeoplewithaccountsatotherbanks,andpeoplewithaccountsatotherbankswritecheckstopeoplewithaccountsatthebank.Banksaresubjecttoreserverequirements.Theactualreserveratio–theratioofbankreservestobankcheckabledeposits–isabout10%intheUnitedStatestoday.26WhatBanksDoBanksholdreservTheBalanceSheetofBanksandtheBalanceSheetoftheCentralBankRevisited27TheBalanceSheetofBanksandWhatBanksDoLoansrepresentroughly70%ofbanks’nonreserveassets.Bondsaccountfortherest(30%).Theassetsofthecentralbankarethebondsitholds.

Theliabilitiesofthecentralbankarethemoneyithasissued,centralbankmoney.Thenewfeatureisthatnotallcentralbankmoneyisheldascurrencybythepublic.Someofitsisheldasreservesbybanks(partlyincashandpartlyintheircenrtralbankaccounts.)28WhatBanksDoLoansrepresentrRumorsthatabankisnotdoingwellandsomeloanswillnotberepaid,willleadpeopletoclosetheiraccountsatthatbank.Ifenoughpeopledoso,thebankwillrunoutofreserves—abankrun.Toavoidbankruns,theU.S.governmentprovidesfederaldepositinsurance.Analternativesolutionisnarrowbanking,whichwouldrestrictbankstoholdingliquid,safe,governmentbonds,suchasT-bills.BankRuns29RumorsthatabankisnotdoinTheSupplyandtheDemand

forCentralBankMoneyLet’sthinkintermsofthesupplyandthedemandforcentralbankmoney.Thedemandforcentralbankmoneyisequaltothedemandforcurrencybypeopleplusthedemandforreservesbybanks.Thesupplyofcentralbankmoneyisunderthedirectcontrolofthecentralbank.Theequilibriuminterestrateissuchthatthedemandandthesupplyforcentralbankmoneyareequal.30TheSupplyandtheDemand

forTheDemandforMoneyDemandforcurrency:Demandforcheckabledeposits:Whenpeoplecanholdbothcurrencyandcheckabledeposits,anddemandformoneybypeopleisforbothcheckabledepositsandcurrency.Thedemandformoneyinvolvestwodecisions.First,peoplemustdecidehowmuchmoneytohold.Second,theymustdecidehowmuchofthismoneytoholdincurrencyandhowmuchtoholdincheckabledeposits.‘31TheDemandforMoneyDemandforTheDemandforReservesRelationbetweendeposits(D)andreserves(R):Demandforreservesbybanks:Thelargertheamountofcheckabledeposits,thelargertheamountofreservesthebanksmusthold,bothforprecautionaryandforlegalreasons.32TheDemandforReservesRelatioTheDemandforCentralBankMoneyDemandforcentralbankmoney:Then:SinceThen:Thedemandforcentralbankmoneyisequaltothesumofthedemandforcurrencyandthedemandforreserves.33TheDemandforCentralBankMoTheSupplyandtheDemand

forCentralBankMoneyFigure4-7DeterminantsoftheDemandandtheSupplyofCentralBankMoney]]34TheSupplyandtheDemand

forSUMMARIZATION:1.demandformoneybypeopleisforbothcheckabledepositsandcurrency.2.Becausebankshavetoholdreservesagainstcheckabledeposits,thedemandforcheckabledepositsleadstoademandforreservesbybanks;3.Consequently,thedemandforcentralbankmoneyisequaltothesumofthedemandforcurrencyandthedemandforreserves4.Thesupplyofcentralbankmoneyisdeterminedbythecentralbank.5.Inequilibrium,thedemandandthesupplyofcentralmoneymustbeequal.35SUMMARIZATION:35TheDeterminationof

theInterestRateInequilibrium,thesupplyofcentralbankmoney(H)isequaltothedemandforcentralbankmoney(Hd):

Orrestatedas:PleaseConsiderthedifferentmeanswhenc=0,c=1,0<c<1,andө=0?

36TheDeterminationof

theInterTheDeterminationof

theInterestRateTheequilibriuminterestrateissuchthatthesupplyofcentralbankmoneyisequaltothedemandforcentralbankmoney.EquilibriumintheMarketforCentralBankMoney,andtheDeterminationoftheInterestRateFigure4-837TheDeterminationof

theInterThedemandforcentralbankmoney,CUd+Rd,isdrawnforagivenlevelofnominalincome.Ahigherinterestrateimpliedalowerdemandforcentralbankmoneyfortworeason:(1)Thedemandforcurrencybypeoplegoesdown:(2)Thedemandforcheckabledepositsbypeoplealsogoesdown.Thisalsoleadstolowerdemandforreservesbybanks.Bothleadstolowerdemandforcentralbankmoney.Thechangesinnominalincomeandinthesupplyofcentralbankmoneycanbothleadtotheshiftofthedemandandsupplycurveofcentralbankmoney.38ThedemandforcentralbankmoTwoAlternativeWaysto

ThinkabouttheEquilibrium*Inadditiontotheequilibriumintermsoftheequalityofdemandandsupplyofcentralmoney,therearetwootherwayoflookingattheequilibrium.Firstly,theequilibriumthatthesupplyandthedemandforbankreservesbeequal:

Thefederalfundsmarketisamarketforbankreservesrate,wheretheinterestratemovesupanddowntobalancethesupplyanddemandforreserves.Banksthathaveexcessreservesattheendofthedaylendthemtobanksthathaveinsufficentreserves.Inequilibrium,demand(Rd)mustequalsupply(H-CUd).TheinterestratedeterminedinthemarketiscalledthefederalfundsratewhichistypicallythougtofasthemainindicatorofU.S.monetarypolicy.4-439TwoAlternativeWaysto

ThinkTheSupplyofMoney,theDemandforMoneyandtheMoneyMultiplierThesecondequilibriumisthattheoverallsupplyofmoneyisequaltotheoveralldemandformoney(includingcurrencyandcheckabledeposits).Thisequilibriumconditioncanbederivedfromtheequilibriumequationofthesupplyanddemandofcentralbankmoney:Supplyofmoney=DemandformoneySupplyofcentralbankmoney=Demandforcentralbank

money:40TheSupplyofMoney,theDemanBecause(c+θ(1-c))<1,so1/(c+θ(1-c))>1,soasaconstant1/(c+θ(1-c))iscalledthemoneymultiplier.The

overallsupplyofmoneyis,therefore,equaltocentralbankmoney(H)timesthemoneymultiplier.Thismeansthatagivenchangeincentralbankmoneyhasalargereffectonthemoneysupply---and,inturn,alargereffectontheinterestrate.High-poweredmoneyisthetermusedtoreflectthefactthattheoverallsupplyofmoneydependsintheendontheamountofcentralbankmoney(H),ormonetarybase,intheeconomy.41Because(c+θ(1-c))<1,so1/(c+θUnderstandingtheMoneyMultiplierWecanthinkoftheultimateincreaseinthemoneysupplyastheresultofsuccessiveroundsofpurchasesofbonds—thefirststartedbytheFedinitsopenmarketoperation,thefollowingroundsbybanks.Eachsuccessiveroundleadstoanincreaseinthemoneysupply.42UnderstandingtheMoneyMultipKeyTermsFederalReserveBank(Fed)Income,Flow,Saving,Savings,Financialwealth,wealth,Stock,Investment,Financialinvestment,Money,Currency,Checkabledeposits,Bonds,Moneymarketfunds,M1VelocityScatterdiagramOpenmarketoperation,LMrelationOpenmarketoperationExpansionary,andcontractionary,openmarketoperation,Treasurybill,T-bill,Financialintermediaries,(Bank)reserves,Reserveratio,Centralbankmoney,Bankrun,Federaldepositinsurance,Narrowbanking,Federalfundsmarket,federalfundsrate,Moneymultiplier,High-poweredmoney,Monetarybase,43KeyTermsFederalReserveBank布兰查德宏观经济学第四版第04章课件TheDemandforMoneyTheFed(shortforFederalReserveBank)istheU.S.centralbank.Money,whichcanbeusedfortransactions,paysnointerest.Therearetwotypesofmoney:currencyandcheckabledeposits.Bonds,

payapositiveinterestrate,i,buttheycannotbeusedfortransactions.4-145TheDemandforMoneyTheFed(sTheDemandforMoneyTheproportionsofmoneyandbondsyouwishtoholddependmainlyontwovariables:YourleveloftransactionsTheinterestrateonbonds

Moneymarketfundspooltogetherthefundsofmanypeopleandusethesefundstobuybonds–typically,governmentbonds.46TheDemandforMoneyTheproporIncomeiswhatyouearnfromworkingpluswhatyoureceiveininterestanddividends.Itisaflow—thatis,itisexpressedperunitoftime.Savingisthatpartofafter-taxincomethatisnotspent.Itisalsoaflow.Savingsissometimesusedasasynonymforwealth(atermwewillnotuseinthiscourse).SemanticTraps:Money,Income,andWealth47IncomeiswhatyouearnfromwYourfinancialwealth,orsimplywealth,isthevalueofallyourfinancialassetsminusallyourfinancialliabilities.Wealthisastockvariable—measuredatagivenpointintime.Investmentisatermeconomistsreserveforthepurchaseofnewcapitalgoods,suchasmachines,plants,orofficebuildings.Thepurchaseofsharesofstockorotherfinancialassetsisfinancialinvestment.SemanticTraps:Money,Income,andWealth48Yourfinancialwealth,orsimpThedemandformoney:increasesinproportiontonominalincome($Y),anddependsnegativelyontheinterestrate(through

L(i),notethenegativesignunderneathL(i)).49Thedemandformoney:6DerivingtheDemandforMoneyTheDemandforMoneyFigure4-1Foragivenlevelofnominalincome,alowerinterestrateincreasesthedemandformoney.Atagiveninterestrate,anincreaseinnominalincomeshiftsthedemandformoneytotheright.50DerivingtheDemandforMoneyTTheDemandforMoneyandtheInterestRate:TheEvidenceUsingthisequation,youcanfindouthowmuchthedemandformoneyrespondstochangesintheinterestrate(throughL(i)).BecauseL(i)isadecreasingfunctionoftheinterestratei,thisequationsays:Whentheinterestrateislow,thenL(i)ishigh,sotheratioofmoneydemandtonominalincomeshouldbehigh.Whentheinterestrateishigh,thenL(i)islow,sotheratioofmoneydemandtonominalincomeshouldbelow.=L(i)Md

$Y51TheDemandforMoneyandtheIFigure4-1TheRatioofMoneyDemandtoNominalIncomeandtheInterestRatesince1960Theratioofmoneytonominalincomehasdecreasedovertime.Leavingasidethistrend,theinterestrateandtheratioofmoneytonominalincometypicallymoveinoppositedirections.TheDemandforMoneyandtheInterestRate:TheEvidence52Figure4-1TheRatioofMoneyFigure4-1suggeststwomainconclusions:Thefirstisthattherehasbeenalargedeclineintheratioofmoneydemandtonominalincomesince1960.Economistssometimesrefertotheinverseoftheratioofmoneydemandtonominalincome($Y/Md)asthevelocityofmoney.Thesecondconclusionisthatthereisanegativerelationbetweenyear-to-yearmovementsintheratioofmoneydemandtonominalincomeandyear-to-yearmovementsintheinterestrate.TheDemandforMoneyandtheInterestRate:TheEvidence53Figure4-1suggeststwomainFigure4-2ChangesintheInterestRateVersusChangesintheRatioofMoneyDemandtoNominalIncomesince1960Increasesintheinterestratehavetypicallybeenassociatedwithadecreaseintheratioofmoneytonominalincome,decreasesintheinterestratewithanincreaseinthatratio.Ascatterdiagramisafigureinwhichonevariableisplottedagainstanother.Eachpointinthefigureshowsthevaluesofthesetwovariablesatapointintime.TheDemandforMoneyandtheInterestRate:TheEvidence54Figure4-2ChangesintheIntTheDeterminationof

theInterestRate.iInthissection,weassumethatcheckabledepositsdonotexist–thattheonlymoneyintheeconomyiscurrency.Theroleofbanksassuppliersofmoney(andcheckabledeposits)isintroducedinthenextsection.4-255TheDeterminationof

theInterMoneyDemand,MoneySupply,

andtheEquilibriumInterestRateEquilibriuminfinancialmarketsrequiresthatmoneysupplybeequaltomoney

demand,orthatMs=Md.Thenusingthisequation,theequilibriumconditionis:MoneySupply=MoneydemandThisequilibriumrelationiscalledtheLMrelation.56MoneyDemand,MoneySupply,

anMoneyDemand,MoneySupply,

andtheEquilibriumInterestRateTheinterestratemustbesuchthatthesupplyofmoney(whichisindependentoftheinterestrate)beequaltothedemandformoney(whichdoesdependontheinterestrate).TheDeterminationoftheInterestRateFigure4-257MoneyDemand,MoneySupply,

anMoneyDemand,MoneySupply,

andtheEquilibriumInterestRateAnincreaseinnominalincomeleadstoanincreaseintheinterestrate.TheEffectsofanIncreasein

NominalIncomeontheInterestRateFigure4-358MoneyDemand,MoneySupply,

anMoneyDemand,MoneySupply,

andtheEquilibriumInterestRateFigure4-4Anincreaseinthesupplyofmoneyleadstoadecreaseintheinterestrate.TheEffectsofanIncreaseintheMoneySupplyontheInterestRate59MoneyDemand,MoneySupply,

anOpenMarketOperationsInmoderneconomies,thewaycentralbankschangethesupplyofmoneyisbybuyingorsellingbondsinthebondsmarket,theseactionsarecalledOpen-marketoperations,becausetheytakeplaceinthe“openmarket”forbonds,itisthestandardmethodcentralbanksusetochangethemoneystockinmoderneconomies.Ifthecentralbankbuysbonds,thisoperationiscalledanexpansionaryopenmarketoperationbecausethecentralbankincreases(expands)thesupplyofmoney.Ifthecentralbanksellsbonds,thisoperationiscalledacontractionaryopenmarketoperationbecausethecentralbankdecreases(contracts)thesupplyofmoney.60OpenMarketOperationsInmoderFigure4-5isthebalancesheetofthecentalbank.Theassetofthecentalbankarebondsitholdinitsportfolio(资产组合).Itsliabilitiesarethestockofmoneyintheeconomy.Openmarketoperationsleadtoequalbutcontrarychangeinassetsandliabilities.

61Figure4-5isthebalancesBondPricesandBondYieldsTheBalanceSheetoftheCentralBankandtheEffectsofanExpansionaryOpenMarketOperationFigure4-5Theassetsofthecentralbankarethebondsitholds.Theliabilitiesarethestockofmoneyintheeconomy.Anopenmarketoperationinwhichthecentralbankbuysbondsandissuesmoneyincreasesbothassetsandliabilitiesbythesameamount.62BondPricesandBondYieldsTheBondPricesandBondYieldsYoumustunderstandtherelationbetweentheinterestrateandbondprices:Treasurybills,orT-billsareissuedbytheU.S.governmentpromisingpaymentinayearorless.Infact,whatisdeterminedinbondsmarketsisnotinterestrates,butprices;theinterestrateonabondcanbeinferedfromthepriceofthebond.63BondPricesandBondYieldsYouIfyoubuythebondtodayandholditforayear,therateofreturn(orinterest)onholdinga$100bondforayearis($100-$PB)/$PB.Ifwearegiventheinterestrate,wecanfigureoutthepriceofthebondusingthesameformula.64IfyoubuythebondtodayandChoosingMoneyor

ChoosingtheInterestRate?Adecisionbythecentralbanktolowertheinterestratefromitoi’isequivalenttoincreasingthemoneysupply(throughopenmarketoperationswhichpurchasebondsandatsametimeincreasetheamountofmoneyintheeconomy.).Figure4-4Typically,thecentalbankfirstthinksabouttheinterestrateitwanttoachieveandthenchangethemoneysupplyintheeconomysoastoachieveit.

65ChoosingMoneyor

ChoosingtheSUMMARIZATION:Theinterstrateisdeterminedbytheequalityofsupplyofmoneyandthedemandformoney..Bychangingthesupplyofmoney,thecentralbankcanaffecttheinterestrate.Thecentralbankchangesthesupplyofmoneythroughopen-marketoperationsinbondsmarket,whicharepurchasesorsalesofbondsformoney.open-marketoperationsarethebasictoolsusedbymordencentralbankestoaffectrates.66SUMMARIZATION:23

Inbondsmarketswhatisdeterminedisnotinterestrates,butprices;theinterestrateonabondcanbeinferedfromthepriceofthebond.

Open-marketoperationsinwhichthecentralbankincreasesthemoneysupplybybuyingbondsleadtoanincreaseinthepriceofbonds–equivalently,adecreaseintheinterestrate.Open-marketoperationsinwhichthecentralbankdecreasesthemoneysupplybysellingbondsleadtoandecreaseinthepri