Description

The aim of this unit is to explain the functioning of a monetary economy, the use of money in a modern society. It is paramount for economists to understand why an economy using money as a medium of exchange is superior to a barter system. With the use of money, we need to discuss its price and how an intertemporal equilibrium can be achieved. Do money and government securities form part of the real wealth of the society? Why do banks not raise interest rates when there is excess demand for credit? These are some of the issues which will be discussed in the lectures.

Topics

• Role of money in the economy
• Rational expectations and monetary theory
• Money supply process
• Optimum money supply
• Demand for money
• Financial model building
• Theory of interest rates
• Term structure of interest rates
• Ricardian equivalence
• Credit rationing