**📅 Date:** ➤ ⌈ [[2025-02-06-Thu〚Monetary & Fiscal Policy ▪ Money Creation ▪ TMS〛]]⌋ **🗺️ Site**： #🌏/🇬🇧 **💭 Note:** ➤ Money serves - 1 Unit Of Account, Store Of Value, Exchange, Deferred of payment ➤ Subprime Crisis (次贷危机) & Money Creation Gone Wrong ➤ Demand for Money (货币需求) 1. Transaction Demand (交易需求) 2. Precautionary Demand (预防性需求): 3. Speculative Demand (投机性需求) ⇩ 🅻🅸🅽🅺🆂 ⇩ **🏷️ Tags**: #💰/Economy-Class #💰/Noun **🗂 Menu**: ⌈[[✢ M O C ➣ 02 ⌈F E B - 2 0 2 5⌉ ✢|2025-F E B-MOC]]⌋ ➤ ⌈[[Econ 011- Monetary & Fiscal Policy]]⌋ **📑 PDF**： **🌐 Link**: --- ![[Mind Map - Money creation.png]] --- ## 🔷 1️⃣ Functions of Money (货币的功能) #### ==Money serves 4 primary functions:== 4. **Unit of Account (计价单位)** - Standard measure of value in the economy. 5. **Store of Value (价值储存)** - Retains purchasing power over time. 6. **Medium of Exchange (交换媒介)** - Eliminates barter system inefficiencies. 7. **Standard of Deferred Payment (延期支付标准)** - Enables credit transactions. 💡 - **Fiat Money (法定货币):** - No intrinsic value, value depends on government backing. - **Commodity Money (商品货币):** - Has intrinsic value (e.g., gold, silver). --- ## 🔷 2️⃣ Money Supply & Money Creation (货币供应 & 货币创造) ### 📌 How Banks Create Money? - **Fractional Reserve Banking (部分准备金制度):** - Banks only keep a fraction of deposits as reserves, lending the rest. - **Money Multiplier Effect (货币乘数效应):** - The process through which loans expand the money supply. 💡 Key Terms - **Leverage (加杠杆):** - Banks use borrowed funds to increase returns. - **Mortgage-Backed Securities (MBS, 住房抵押证券):** - Bundled loans sold as investment products. ### 📌 Subprime Crisis (次贷危机) & Money Creation Gone Wrong - **Excessive leverage & risky mortgage lending.** - **Securitisation (MBS) amplified risk across global markets.** - **When defaults increased, the system collapsed, leading to the 2008 financial crisis.** ### 📌 Why Banks Need Reserves (银行为什么需要准备金) ##### ✅ **Reserves = Bank's safety net** - **Prevents financial crises (防止金融危机).** - **Prevents bank runs (防止挤兑).** - **Reduces bankruptcy risk (降低破产风险).** ![[Money Creation _Central Bank.jpeg|#left|400]] ##### 💡 Insight: - **Required Reserves (法定准备金):** - Central banks mandate banks hold a minimum reserve ratio. - **Excess Reserves (超额准备金):** - Extra reserves banks hold for additional liquidity. --- ## 🔷 3️⃣ Narrow Money vs. Broad Money (狭义货币 vs. 广义货币) #### 📌 **Governments monitor money supply to manage economic stability.** | **Category** | **Definition** | **Liquidity Level** | **CFA Relevance** | |-------------|--------------|----------------|----------------| | **M1 (狭义货币)** | Cash + demand deposits | **High** | Short-term money supply | | **M2 (广义货币)** | M1 + savings, time deposits, money market funds | **Moderate** | Central bank targets M2 growth | | **M3 (更广义货币)** | M2 + large time deposits, institutional money | **Lower** | Broader measure of credit growth | 📌 **Key Differences:** - **M1 = Spendable money (💳)** - **M2 = M1 + Savings & investments (🏦)** - 💡 - **Money Supply Growth & Inflation (货币供应增长与通胀):** - Excess M2 growth can lead to inflationary pressures. - **Velocity of Money (货币流通速度):** - Measures how fast money moves through the economy. --- #### 📌 Demand for Money (货币需求) 1️⃣ **Transaction Demand (交易需求):** Money held for daily expenses. 2️⃣ **Precautionary Demand (预防性需求):** Money saved for unexpected events. 3️⃣ **Speculative Demand (投机性需求):** Money held for investment opportunities, influenced by interest rates. 💡 - **Liquidity Preference Theory (流动性偏好理论):** - People hold cash based on expected returns & risk. - **Interest Rate Impact (利率影响):** - Higher interest rates reduce money demand for speculation. --- ## 🔷 Summary - ✅ **Money = Medium of exchange, store of value, unit of account, deferred payment tool.** - ✅ **Money creation through fractional reserve banking expands the money supply.** - ✅ **Monetary aggregates (M1, M2, M3) measure liquidity & economic activity.** - ✅ **Money demand depends on transactions, precaution, and speculation.** - ✅ **Subprime crisis was a result of excessive risk-taking & poor money management.** --- ![[CFA EX - Money.jpeg]]