Reflective Exercise: Money –just another good?
1
Scenario
What is meant by the money market? Can it be analysed in the same way as the
market for any other good? What happens in the money market if there is an
increase in income? Does this depend on whether a Monetarist or Keynesian view is
taken? This exercise examines these aspects.
Section 1: Parts A, B, C, D and E
Setting the framework for investigating this question
Take a note of your responses in your own hard copy
A
Why do people need money?
Put a cross by however many of the following you think appropriate
a
To buy things like food, beer and haircuts.
b
Because what we have in money determines our wealth.
c
So that we can replace important things that are broken or lost
quickly and easily.
B
Put a cross by however many of the following you think appropriate
As a student, when you graduate and get a job your income will
rise and you will demand more money in order to spend more.
For many students their money demand is their student loan.
Income is what we get paid over a certain period of time – over a
week, month or per term – whereas our money is what we have in
notes and coins or in a bank account at a particular time.
The quantity of money is the amount of notes and coins issued.
The quantity of money is the amount of notes and coins in
circulation and certain types of bank deposits.
What I have in notes and coins and in my bank account today is
my income.
What I have in notes and coins and in my bank account today is
my money balance.
C
Put a cross by however many of the following you think appropriate
In examining the money market we will start by considering
demand, supply and equilibrium as these are important in any
market.
In examining the money market we will start by considering
demand, supply and disequilibrium.
Whether we use demand and supply will depend on whether we
are taking a Monetarist or Keynesian view.
a
b
c
d
e
f
g
a
b
c
Continued on page 2
Copyright: Embedding Threshold Concepts Project
21/08/07
This project is funded by the Higher Education Funding Council for England (HEFCE) and the Department for Employment and
Learning (DEL) under the Fund for the Development of Teaching and Learning.
Reflective Exercise: Money –just another good?
D
Put a cross by however many of the following you think appropriate
If there is inflation we will have to hold more money to purchase
the same amount of goods and services because of the higher
prices.
In considering the quantity of money we are concerned with the
quantity of goods, services and assets that the money will buy.
The quantity of money we are concerned with is the amount of
money held, adjusted for changes in the price level, which is
known as real money balances.
The quantity of money we are concerned with is the money held,
which is known as nominal money balances.
E
Put a cross by however many of the following you think appropriate
Since we measure the price of other goods in terms of money, it
cannot have a price itself.
The price of money is the opportunity cost of holding money.
If interest rates rise some people may shift money from their
current accounts into other forms of savings.
If inflation rises then some people will buy things like cars and
houses with their money before it loses more value.
a
b
c
d
a
b
c
d
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Copyright: Embedding Threshold Concepts Project
21/08/07
This project is funded by the Higher Education Funding Council for England (HEFCE) and the Department for Employment and
Learning (DEL) under the Fund for the Development of Teaching and Learning.