Estimating the Demand for Money Essay Example for Free

Estimating the Demand for Money Essay We all know that money employed in consumption sustains life and gives pleasure, but it does not lead to economic growth. Money employed for investment increases productive capacity, thereby increasing wealth available for consumption investment in the future. Use of money for both consumption investment leads to employment but later reaps future benefits. The quantity theory of money posits that the value of money is equal to the collective supply of goods and services in an economy. The value of money could be called the aggregate clearing price for the aggregate supply aggregate demand in an economy. A condition in which the aggregate clearing price is below the aggregate costs of production would be symptomatic of gross misallocations of resources in an economy but this kind of condition is not theoretically impossible. Ending of wars that includes cold wars are often associated with massive reallocations of productive resources and these reallocations can involve painful periods of readjustment. â€Å"Artificial bubbles† resulting from central banker manipulation of money and interest cause boom bust misallocations. Regarded money as nothing but a means to facilitate barter, the aggregate supply of goods and services represents the wealth of society. If everyone woke up one morning to find every dollar replaced by one hundred dollars, no one would be wealthier or poorer because wages and prices had two additional zeroes. Nor would there be any change in either aggregate supply or demand. The concept of aggregate supply to represent the wealth of society can be misleading. Most homeowners would sell their house if offered an outrageously high price for it. In that sense, nearly all existing homes are part of the aggregate supply. But in the normal course of events, homeowners are slowly consuming their houses by living in them and are not considering an immediate sale although the thought of eventual re-sale is usually in their minds. Similarly, most capitalists would sell their factories if offered a high price, but are primarily focused on increasing the productivity of those factories and ensuring that the factories produce goods for which demand is high. Money works magic in the minds of many economists which transform simple relationships into complex conceptual nightmares. Say’s Law one monetary interpretation holds that the costs of production (paid for labor, land and capital goods) results in the incomes essential for purchasing output. Moving this argument further, critics of Says Law express concern that all the income will not be spent concerning that some money will be saved or even hoarded. Thinking that it is better to save the money than to spend it that result to manufacturing decline, unemployment and recession. But the confident consumer who saves and invests actually benefits the economy more than the consumer who spends. Invested capital provides the means to hire labor and other factors of production that increase employment and wealth. Vision of economic activity as a circular flow of money between spenders earners blinded him to the nature of wealth-creation, productive incentives, productivity increase and economic growth. The economic benefits of savings should not be justified on the grounds that savings is another form of spending. On the contrary, savings is the source of capital accumulation. Capital technological progress is the source of economic growth. Capital means plant, equipment, technology, research and employees to make new products. Consumers can only keep an economy from recession if they are employed in productive activity. If unemployment is low and those employed are producing useful goods services, then an economy can remain healthy. High consumer spending is more an effect than a cause of the economic well-being associated with low unemployment. Consumer confidence is expected to be high if unemployment is low. Recession is not just a national bad mood. Unemployed consumers who spend money received from government destroy consume wealth without producing wealth. Economic growth occurs only if the consumer is also a producer. In empirical method it determines the relationships between economic variables through observation or experiment. The Baumol-Tobin model provides the foundation for most empirical studies of money demand. The Capital Asset Pricing Model, while important in financial economics, is viewed to be much less important in determining money demand. Most wealth is shifted under the speculative motive from long-term to short-term securities rather than money. The prices of short-term bonds do not change as much as long-term bonds and there is a default risk with money because of the limit to federal insurance on deposits. One of the difficulties in empirical work on money demand is that money demand adjusts to changes in income and interest rates with a lag. In other words, a change in income leads to a delayed change in money demand. Money demand may be slow to change because of adjustment costs, expectations may be slow to adjust or may hold that a change in income or interest rates is in part temporary. Consequently, empirical studies of money demand look at both short-term and long-term responses to changes in macroeconomic conditions. An increase in the interest rate reduces the demand for M1 money as expected, but the effect is small. An increase in the interest rate from 4 to 5 percent (a 25 percent increase) reduces money demand in the short run by 0. 5 percent (= 0. 02 x 25%). The long run response is about a 1. 25 percent reduction in money demand. An increase in the interest rate from 10 to 11 percent produces even smaller money demand responses. There is an extensive literature on the theory of money demand and the influencing factors. In general, the real money balances are related to some scale measure, such as income or wealth, and some opportunity cost measures, such as inflation, interest and exchange rates. There are various discussions on the form of the money demand function and the selection of the variables entering in the equation. Thus the choice of economic indicators varies in different country experiences due to the distinction in different financial systems. The choice of an appropriate monetary aggregate for the estimation of a meaningful money demand function is complicated. Either a broad or a narrow definition of money can be used as the monetary variable depending on the issue of the monetary authorities. Generally it may be thought that a narrow definition of money like monetary base or M1 tends to be more flexible and reactive to market operations and thus to interest rate policies. Narrow money can have a close relationship with prices since it can easily be influenced by economic variables, however it cannot always be adequate to capture all the information related to the financial system. Although narrowly defined aggregates are easy to control, their relationship with income appears subject to considerable variability. One main cause of this insufficiency is due to banking habits of money holders, as they wish to hold their savings not only in demand deposits, but also in time deposits or other different financial instruments. For that reason, a broader definition of money, such as M2 or M2X, can comprise a wider range of the financial system; however it may be less sensitive to the changes in the economy. The scale variable measuring the level of economic activity is the first determinant of the money demand function. The holding of money and thus the demand for money are related to the volume of the transactions, using the fact that the amount of the transactions is proportional to the level of income. Either a wealth variable or an income variable can be used as a scale variable. Generally, when wealth data is not available, an income variable like the Gross National Product or Gross Domestic Product can be taken into consideration. Money demand is directly proportional to income, but inversely related to market interest rates and yields on different financial assets. The interest rate concerning time deposits is thought to be the nominal return of holding money if the broad definition of money is considered, hence has a positive sign in the money demand equation. Another important variable which measures the rate of return of an opportunity cost is the interest rate on government securities. As currency substitution can occur either by switching into foreign denominated deposits or by switching to bonds or securities, the rate of interest on government securities is a measure of the rate of return of an opportunity cost, and its expected sign in the equation is therefore negative. The relationship between inflation and the demand for money has been studied widely. If there are high fluctuations in prices, the rate of inflation becomes an important determinant of the money demand function. Money demand is inversely related to predictable inflation rate since an increase in inflation increases the cost of holding money. Especially, in developing countries, the long run inflation elasticity is generally expected to be high as the range of financial instruments outside money is limited and real assets represent a substantial part of the public’s portfolio (Nachega, 2001). Like in Turkish economy that is subject to not only a high degree of price level but also a high variability in the prices, the price level has a considerable impact on the return of financial assets; as money holders will have difficulties in predicting the prices, the risk in saving money will raise and consequently the holding of money will tend to decrease. Since foreign exchange rate measures the rate of return on holding foreign currency, it is also an important determinant in the demand equation on holding foreign currency. The sign of exchange rate is negative since when the deposit holders increase their demand for foreign currencies, the domestic currency will depreciate. In an open economy, the return of foreign assets is usually denoted by some exchange rate variable, which may have an increasing role due to the high level of financial globalization. (Central Bank Review, 2002 pp. 55-65). Boughton (1992) presents the sources of disturbances that can affect the elasticities of variables in the long run equation. Inflation expectations varying over time is the first important factor that may affect real return of assets which is a vital element of the money demand equation. An inflationary expectation is generally proxied by the inflation rate, thus it is essential to examine the inflation data before inserting in the money demand equation. The change in exchange rate is the second important source of variability. Therefore the relationship between the exchange rate mechanism and the dynamics of real money balances is important, justifying the addition of the real effective exchange rate into the model.

The South Pole, a comparison essay :: essays research papers

An arid tundra; temperatures so cold that limbs become black and immobile, land so barren that hardly anything can survive, this is the South Pole. Why anyone would want to go there may be hard to understand. Traveling to the South Pole isn’t just a lengthy process and an uncomfortable experience, it is extremely dangerous as going to far south provides several life threatening conditions. To survive in such cold conditions one would need specially made clothing designed for such extremely cold climate. Maybe the pre-planning part of the trip is what separates Amundsen and Scott the most. Both explorers have reached the South Pole but only Amundsen has returned, in good health. This can be mostly attributed to careful planning or as some would call, luck. Amundsen once said, â€Å"’Victory awaits those who have everything in order. People call this luck†¦Ã¢â‚¬â„¢Ã¢â‚¬  (517). It can be judged from this quote that Amundsen is not one to believe in superstition. He believed that luck is a direct result of cautious planning and careful decision making. Scott on the other hand had a more fate oriented outlook on luck. A note was found beside Scott’s body that read, â€Å"’The causes of the disaster are not due to faulty organization but to misfortune’† (522). Scott believed that several events could take place during a journey that were out of the control of the explorer, who in this case was Scott. Several events have occurred in Scott’s journey but not in Amundsen’s. Some of the misfortunes of Scott’s advent ure include having several supplies break through thin ice and become lost in the South Pole water. This mishap probably couldn’t have been avoided unless the utmost scrutiny was observed during the trip. Being so cautious and careful would take a large amount of travel time away however and one can not possibly expect to reach the South Pole while traveling so slowly. So perhaps Scott was right and Amundsen has succeeded by blind luck along with his careful planning.   Ã‚  Ã‚  Ã‚  Ã‚  Amundsen analyzed every aspect of the journey before setting forth. If he felt that any particular item wasn’t as efficient as it possibly could he would upgrade and modify it. This act of Amundsen can be attributed to his success as well as some other plans he made. Amundsen planned for a long time, he studied everything that was written about the South Pole.

Real Number Essay

1. How do modules help you to reuse code in a program? It reduces the duplication of a code within a program by reusing the module that was written once. 2. Name and describe the two parts that a module definition has in most languages. The Header and a Body First the Header indicates a starting point Second the Body is a list of statements 3. When a module is executing, what happens when the end of the module is reached? Its executed and returned back to the point in the main program where it was sidetracked from 4. What is a local variable? What statements are able to access a local variable? A variable is declared inside a local module in which it is the only statement within a module 5. In most languages, where does a local variable’s scope begin and end? It begins at the variables declaration within a module and it ends at the end of the module in which the variable is declared. 6. What is the difference between passing an argument by value and passing it by reference? By the value only a copy of the arguments value is passed and by reference it is passed into a special modifications parameter. 7. Why do global variables make a program difficult to debug? It is because the global variables is used throughout all modules and plus they are hard to track. Algorithm Workbench 1. Design a module named timesTen. The module should accept an Integer argument. When the module is called, it should display the product of its argument multiplied times 10. Module Main () Call timesTen Module timesTen (Integer Value) Declare integerValue Set result = value*10 Display result End Module 5. Design a module named getNumber, which uses a reference parameter variable  to accept an Integer argument. The module should prompt the user to enter a number and then store the input in the reference parameter variable. Module getNumber (Integer Ref value) Display â€Å"Display a number† Input number End Module Module main () Declare Integer number x = 1 Declare Real number y = 3.4 Display (x, â€Å" † ,y) Call changeUS (x, y) Display (x, â€Å" † ,y) End module 6. What will the following pseudocode program display? Declare Integer x = 1 Declare Real y = 3.4 Display x, † â€Å", y Call changeUs( x, y) Display x, † â€Å", y End Module Module changeUs( Integer a, Real b) Set a = 0 Set b = 0 Display a, † â€Å", b End Module It will not display anything since there is nothing within the quotation marks 7. What will the following pseudocode program display? Module main() Declare Integer x = 1 Declare Real y = 3.4 Display x, † â€Å", y Call changeUs( x, y) Display x, † â€Å", y End Module Module changeUs( Integer Ref a, Real Ref b) Set a = 0 Set b = 0.0 Display a, † â€Å", b End Module As far as the module you would think that the displays would show something. But in both strings within the quotations marks both are blank to display. Programming Exercises 1. Kilometer Converter Design a modular program that asks the user to enter a distance in kilometers, and then converts that distance to miles. The conversion formula is as follows: Miles = Kilometers Ãâ€" 0.6214 Module main () Declare Real Kilometers Display â€Å"Enter a distance in kilometers† Input kilometers Call conversion (kilometers) End Module Module conversion (Realvalue) Declare Realmiles Set miles = value*0.6214 Display miles 2. Sales Tax Program Refactoring Programming Exercise 6 in Chapter 2 was the Sales Tax program. For that exercise you were asked to design a program that calculates and displays the county and state sales tax on a purchase. If you have already designed that program, refactor it so the subtasks are in modules. If you have not already designed that program, create a modular design for it. Module main () Declare Realpurchase Display â€Å"Enter the amount of purchase† Input purchase Call Module totalState (purchase) Call Module totalCounty(purchase) Declare Real totalTax Declare Real totalSale Set totalTax = totalState + totalCounty Set totalSale = purchase + totalTax Display â€Å"Your total state tax is†, totalState Display â€Å"Your total county tax is†, totalCounty Display â€Å"Your total tax is†, totalTax Display â€Å"Your total of your sale is†, totalSale End Module Module totalState (real Ref purchase) Set totalState sales tax = purchase*0.04 End Module Module totalCounty (real Ref purchase) Set totalCounty sales tax = purchase*0.02 End Module

African-American Soldiers In World War 1 - Free Essay Example

Sample details Pages: 3 Words: 853 Downloads: 5 Date added: 2019/05/13 Category History Essay Level High school Tags: War Essay World War 1 Essay Did you like this example? The digital archives of the, ?Library of the Congress, provide valuable and credible chronological documentation of the events which occurred in Brownsville. The following night after the case with Mrs Evans, ?a group of unidentified men rushed through Brownsville firing wildly In the course of the fracas one white person was killed and two other wounded. Wynne highlights the main fact the group of men responsible were ?unidentified, by the local investigation units as well as the police. On the other hand, this was not the case with the Brownsville Daily Herald, as it states, ?the Negroes seemed to have divided into squads going on different streets it is estimated between 100 to 200 shots were fired by the negroes. The opinionated newspaper was very quick to address the ?suspects were the African-American soldiers stationed in Brownsville without any proper investigation. This enforces Wynnes notion of a stigma directed towards the African-Americans, that they were always the, ?problem, justified or unjustified. In addition, the local Brownsville police patrol, ?found only one of the soldiers on the streets and it seems that he had a pass and was unarmed. Don’t waste time! Our writers will create an original "African-American Soldiers In World War 1" essay for you Create order The investigation following the Brownsville Incident The Brownsville Incident had an enormous impact upon the African-American population as it posed as a grave turning point after the election in 1906. According to Wynne, ?the beginning of the twentieth century saw a rise in the hopes of Negroes the focal point of these hopes was Theodore Roosevelt. African-Americans believed they had the President on their side especially after the appointment of , ?black officeholders in the face of white opposition, dined with Booker T. Washington in the White House. At the time it was believed grave steps were being made in the right direction in order to improve the social justice and rights of African-Americans in the U.S. This all would change prior the incident at Brownsville where Roosevelt betrayed the same Black soldiers which marched with him through San Juan Hill. The evidence used against the African-American soldiers was almost minimal, no soldiers were ever to be identified to have been at the scene of the incident. Yet, most of the ?eye-witnesses claimed that African-American soldiers were responsible. The most credible allegation made against the soldier was that, ?eight Brownsville townspeople that they recognized-either by sight or by voices to be Negro Soldiers. This evidence, however, is inconclusive and inaccurate. Most allegations put forward for investigation were racially instigated mainly because no civilians nor policemen were able to identify the perpetrators, yet the eye-witlessness were always certain they were African-American. This notion is supported by James A. Tinsley, who regards the unfalsifiable allegations as, ?responsible for shaping decisions. Tinsley implies that the racist motives of the supposed ?eye-witness fuelled the efforts of Southern investigators to unlawfully punish the African-American soldiers without a valid means of investigation, hence, the false allegations against the soldiers which never proven. Another point to consider, is that the African-American soldiers were under curfew in camp whilst the incident took place. Evidently, ?Major Charles W. Penrose first thought the post had been attacked. For more than an hour after the shooting Penrose kept his troops deployed in a defensive position within the reservation. According to this the soldiers of the regiment could not have been at the incident since they were in ?defensive formation around Fort Brown. Evidently, it was when Penrose ordered a patrol into the main town to, ?investigate the shooting, was when Penrose and his were confronted, ?with the accusation that men of his command had caused the disturbance. President Roosevelts inclusion with the Brownsville Incident began after his ?approval of the Major Blocksoms report. Major Blocksom issued an, ?ultimatum in his report and administered it to General Ernest Garlington. Garlingtons observations whilst questions the suspected soldiers was, ?they appear to stand together in a determination to resist the detection of the guilty; there- fore they should stand together when the penalty falls. A forceful lesson should be given to the Army at large, and especially to the non-commissioned officers. The nature of the report African-American soldiers already had information regarding the incident because Blocksom believed it was prearranged. This is shocking because all of the soldiers pleaded that they had no knowledge of the shootings. Blocksoms statement demonstrates how racist motives against African-American Soldiers affect justice. Tinsley stated how earlier allegations would go on to ?shape later decisions because of their racist prejudices against Blacks. Roosevelt alongside Blocksom and Garlington gave no proper nor lawful investigation of the incident. There never enough evidence to charge the soldiers, however, the Federal investigator treated the soldiers as if they were already guilty. This can be supported by Weavers investigation in 1970 which describes Roosevelts impatient behaviour surrounding the incident, ?By George! The mens guilt is clear as day! Weaver also support the notion that, ?none of the soldiers was ever proved guilty of the crime for which all of th em were punished. Furthermore, throughout the entire investigation the African-American soldiers were treated as if they all were involved, whilst the truth was they never knew what happened, yet 167 soldiers were still dishonorably discharged.