Role of money
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This document discusses the role of money in the economy and the relationship between capital, financial, and money markets. It covers topics such as investment and savings, the determination of interest rates in commodity and fiat money systems, how financial prices connect money and capital markets through bond markets, and the relationship between return on capital, price of capital, and interest rates. It also discusses the simultaneous equilibrium between the capital, money, and financial markets.
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![Relation between markets and the: return on capital, price of capital and
money interest rate
MV=PY where M= money stock; V= velocity of money; P=money as medium of account
and Y= stock of products (production)
and M=1/v[PY] where 1/v=k and k = demand for money
and MV/P = Y where MV/P is use of real money use and Y is Real Income = Real Production
i = R = r/P where i=real rate of money interest; r=real return = [P*- P] and P= price of
asset (good/bond) [ix100 = r/Px100 to make it possible to relate interest value and return
index return is relative value depends on the price of an asset].
Arbitration, speculation and market equilibrium
7](https://image.slidesharecdn.com/roleofmoney-170824103316/85/Role-of-money-7-320.jpg)
![Simultaneous equilibrium in the capital, financial and money market
Capital market Money market Financial market
8
I S
Sb [demand
for money]
Lm Ms
QmQb
i=R[=r/p]
Qc
1/p [= i/r]
Market for
maize seed
Market for
money
Market for
bonds
Db [supply of
money]
i
i*
i[=r/p]](https://image.slidesharecdn.com/roleofmoney-170824103316/85/Role-of-money-8-320.jpg)
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This course provides students with a comprehensive understanding of strategic management principles, frameworks, and applications in business. It explores strategic planning, environmental analysis, corporate governance, business ethics, and sustainability. The course integrates Sustainable Development Goals (SDGs) to enhance global and ethical perspectives in decision-making.AI and Academic Writing, Short Term Course in Academic Writing and Publicatio...
AI and Academic Writing, Short Term Course in Academic Writing and Publicatio...Prof. (Dr.) Vinod Kumar Kanvaria
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Role of money
- 1. Role of money in the economy [ Capital, return and interest Real economy Self- sufficient household (economy) production and consumption Investment and savings Investment, production, savings and return Investment, production, savings, return and the real (natural) interest rate 1
- 2. The determination of interest in a capital market Supply of capital (Savings) 2 Return Qc Demand for capital (Investment) r2 r1
- 3. The determination of interest in the gold market Determination of interest rate in a commodity money system 3 Interest Qm Demand for gold money i2 i1 Supply of gold money
- 4. Determination of interest in a fiat money system 4 Interest Qm Demand for fiat money i2 i1 Supply of fiat money without a central bank
- 5. The determination of interest in the fiat money market Determination of interest rate in a fiat money system with-out and with a central bank 5 Interest Qm Demand for fiat money i2 i1 Supply of fiat money with a central bank
- 6. Financial prices connect money and real capital markets: The determination of the price of a bond market Demand of bonds (Save - money exchanged for bonds) 6 1/P Qb Supply of bonds (Investment bonds exchanged for money 1/P* 1/P
- 7. Relation between markets and the: return on capital, price of capital and money interest rate MV=PY where M= money stock; V= velocity of money; P=money as medium of account and Y= stock of products (production) and M=1/v[PY] where 1/v=k and k = demand for money and MV/P = Y where MV/P is use of real money use and Y is Real Income = Real Production i = R = r/P where i=real rate of money interest; r=real return = [P*- P] and P= price of asset (good/bond) [ix100 = r/Px100 to make it possible to relate interest value and return index return is relative value depends on the price of an asset]. Arbitration, speculation and market equilibrium 7
- 8. Simultaneous equilibrium in the capital, financial and money market Capital market Money market Financial market 8 I S Sb [demand for money] Lm Ms QmQb i=R[=r/p] Qc 1/p [= i/r] Market for maize seed Market for money Market for bonds Db [supply of money] i i* i[=r/p]