Chapter XIV Money and Economy Section 1 Money and Financial System The role of money in the economy is closely related to the financial system of an economy. Therefore, to understand how money affects the economy, we must first understand the financial system. An economic and financial system includes the central bank, financial intermediaries and financial markets. 1. The central bank is an institution used to supervise the banking system and control the amount of money in the economy. The economy of any country needs such a central bank to maintain the normal operation of the banking system and economy. Therefore, strengthening the independence of the central bank has become a trend in all countries. No matter what the formal differences are, central banks in various countries have four basic characteristics: first, they are not for profit; Second, do not engage in the business of financial intermediaries such as commercial banks; Third, it has dual functions of service and supervision, which not only supervises financial institutions such as commercial banks, but also provides services for them; Fourth, it regulates the economy through monetary policy. No matter how independent it is, whether it is a government department or not, it is an important institution for the government to regulate the economy. Because of this, the central bank plays an increasingly important role in the economy. The function of the central bank is to supervise and serve the banking system, for example, to supervise the financial status and business activities of banks and ensure that all banks and financial intermediaries operate in accordance with relevant government laws and regulations; Reserve funds for banks; As a lender of last resort, provide loans when banks need funds; Assist in inter-bank settlement business; Wait a minute. These activities ensure the orderly and normal operation of the whole banking system and prevent the economic turmoil caused by banking financial problems. Another function is that the central bank, as the only currency issuer, can control the money supply in the economy and adjust the economy by controlling this money supply. In other words, the central bank uses monetary policy to regulate the economy. Second, financial intermediaries Financial intermediaries are the link between families, enterprises and financial markets. They absorb deposits from families and enterprises and provide loans to other families and enterprises. They are also enterprises that provide financial services to families and enterprises. When understanding financial intermediary, we should pay attention to two points: first, it is an enterprise, like other enterprises that provide products and services, with the aim of maximizing profits. Second, its business is to provide various financial intermediary services as an intermediary between families, enterprises and capital markets. It provides deposits, loans and various financial settlement services, and benefits from these services. There are different types of financial institutions in different countries, but the most important one is commercial banks, which are enterprises engaged in financial intermediary. In addition to commercial banks, there are other financial institutions, no matter what kind of financial intermediary, their functions are the same. Financial intermediaries have a special role in the economy, that is, they can create money. This does not mean that financial intermediaries can issue money by themselves, but can create money through normal deposit and loan business. Money created by banks means that banks can increase the amount of money in circulation through deposit and loan business. This mechanism is very important to the economy. We take commercial banks as an example to illustrate the mechanism by which banks create money. The key for banks to create money is that modern banks are part of the reserve system, that is, only part of deposits are used as the reserve system. In other words, banks don't have to put all the deposits they absorb in the vault or the central bank as reserves, as long as they keep enough reserves according to the statutory reserve ratio stipulated by the central bank, and other deposits can be issued as loans. The statutory reserve ratio is the ratio of the minimum reserve required by the central bank to bank deposits. How do banks create money? Let's illustrate this point from the balance sheet of Bank A: Suppose that Bank A absorbs deposits of RMB 6,543.8+0,000, of which RMB 6,543.8+0,000 is used as reserve, and the rest, such as/kloc-0,000/0,000, is lent to customer A. In modern society, generally speaking, customer A who has obtained loans does not make loans in cash, but the depositor has a business relationship with Bank B, because he can write checks or transfer money. When Bank B obtains this deposit of 900,000 yuan, its balance sheet is: That is to say, after Bank B obtains a loan of 900,000 yuan, 90,000 yuan is used as reserve, and the remaining 865,438+00,000 yuan can be used as Party B's loan ... After obtaining the loan, Bank B deposits 865,438+00,000 yuan into Bank C, which has business dealings with itself. Therefore, the balance sheet of Bank C is as follows: Bank C has obtained 865,438+00,000 yuan in deposits, and still uses 865,438+00,000 yuan as reserves, and the remaining 729,000 yuan as loans ... This process will continue, and deposits are money. The increase of deposits is the increase of money in circulation: the increase of deposits in this process is: 6,543.8+0,000 yuan+900,000 yuan+8,654.38+0,000 yuan+729,000 yuan+...: 65,438+0,000 yuan. At the end of this process, the currency in circulation is 654.38+0,000 million yuan. The deposit of 654.38+00000000 yuan increased to 654.38+00000000 yuan through the process of bank absorbing loans and deposits. This is the bank that created money. How much money can a bank create when the initial deposit is fixed? If and represent the initial deposit; D stands for total deposit, that is, created currency; Represents the statutory reserve ratio (0

Chapter XV Unemployment, Inflation and Economic Cycle Section 1 Long-term unemployment is called natural unemployment and short-term unemployment is called cyclical unemployment. This section analyzes the periodic unemployment in the short term. I. Periodic Unemployment Periodic unemployment, also known as unemployment with insufficient aggregate demand, is a short-term unemployment caused by insufficient aggregate demand. This kind of unemployment is consistent with the cyclical fluctuation of the economy. When the economy is prosperous, the total demand is sufficient, and this kind of unemployment is low or even non-existent; When the economy is depressed, the total demand is insufficient, and this unemployment rate is high. Because it has this relationship with total demand, it is called cyclical unemployment. Keynes emphasized short-term aggregate demand analysis and explained the existence of this unemployment with insufficient aggregate demand. Keynes believed that the level of employment depends on the gross domestic product, and the gross domestic product depends on the short-term aggregate demand. When the total demand is insufficient and the gross domestic product cannot reach the level of full employment, this kind of unemployment will inevitably occur. Keynes used the concept of contraction gap to explain the cause of this unemployment. Keynes analyzed the reasons for the contraction gap. Keynes divided total demand into consumption demand and investment demand. He believes that the factors that determine consumption demand are the level of gross domestic product and marginal propensity to consume, and the factors that determine investment demand are the expected future profit rate (that is, marginal efficiency of capital) and interest rate level. He believes that in the case of a certain gross domestic product, consumer demand depends on the marginal propensity to consume. He used the law of diminishing marginal propensity to consume to explain the reasons for insufficient consumer demand. That is to say, in the increased income, consumption is also increasing, but the increase in consumption is lower than the increase in income, resulting in insufficient consumption. Investment is to obtain the maximum net profit, and this profit depends on the expected profit rate of investment (that is, the marginal efficiency of capital) and the interest rate paid when lending for investment. If the expected profit rate is greater than the interest rate, the greater the net profit, the more investment; On the other hand, if the expected profit rate is less than the interest rate, the net profit is smaller and the investment is less. Keynes used the law of diminishing marginal efficiency of capital to explain that the expected profit rate is declining. Because of the existence of money demand (that is, psychological flow preference), the decline of interest rate is limited, which makes the expected profit rate and interest rate closer and closer, and the investment demand is also insufficient. Insufficient consumption demand and investment demand lead to insufficient total demand, which leads to involuntary unemployment, that is, the existence of periodic unemployment. We can also use the total demand-total supply model to explain the reasons for the existence of periodic unemployment. As mentioned above, the analysis of the aggregate demand-aggregate supply model tells us that when the macroeconomic equilibrium is reached, there are three states: full employment equilibrium, less than full employment equilibrium and greater than full employment equilibrium. What leads to periodic unemployment is the difference below full employment. Second, the impact of unemployment: Austria stated that the main loss of unemployment is the impact on the growth rate. How much loss will unemployment cause to the growth rate? In 1960s, American economist Okun estimated the economic relationship between unemployment rate and real GDP growth rate according to the actual data of the United States. This is the Austrian affirmative principle in economic theory. The Austrian school's proposition applies to periodic unemployment. If the real GDP growth rate is 2% higher than that of full employment, the unemployment rate will drop 1%. If the real GDP growth rate is less than 3%, such as 1%, the unemployment rate will change: at this time, the unemployment rate will increase by 1%. Austria must be an empirical statistical formula based on the statistical data of the United States in the 1960 s, which may not be applicable to other countries or other periods in the United States. However, it points out that the relationship between unemployment rate and the reverse change of real GDP growth rate is universal. Economists generally establish the relationship between unemployment rate and real GDP growth rate as 1: 2 when applying Austrian affirmation theory. In the practical application of this principle, this proportional relationship should be adjusted according to the actual statistical data. Unemployment not only affects the real GDP growth, but also causes other economic and social problems, such as waste of resources and aggravation of social problems. Therefore, achieving full employment has always been one of the main goals of macroeconomic policies in various countries. Section II Inflation Theory Inflation is another important issue in macro-economy. It is also the center of this section. First, the meaning of inflation is not completely consistent with the explanation of inflation by classified economists. The generally accepted definition is that inflation is a general and sustained increase in the price level. When understanding inflation, we should pay attention to the following: First, the price increase does not refer to the price increase of one or several commodities, but refers to the general price increase, that is, the overall price increase. Second, it doesn't mean a temporary increase in the price level, but a price increase that lasts for a certain period of time. The index to measure inflation is the price index. Economists classify inflation according to different standards. We introduce the classification according to the severity of inflation. According to the severity of inflation, it can be divided into three categories: first, creeping inflation, also known as moderate inflation, which is characterized by low and relatively stable inflation rate. The second is to accelerate inflation, also known as Mercedes-Benz inflation, which is characterized by a high inflation rate (generally above double digits) and is still increasing. Third, hyperinflation, also known as hyperinflation, is characterized by a very high inflation rate (the standard is that the monthly inflation rate is above 50%) and it is completely out of control. This kind of inflation will cause the complete collapse of the financial system, economic collapse and even regime change. There is also a kind of suppressed inflation, also called hidden inflation. This kind of inflation means that there is inflationary pressure in the economy, but because the government has implemented strict price control and rationing system, there is no inflation. Once price control and rationing are lifted, serious inflation will occur. This kind of inflation existed in the original planned economy countries before the economic reform, which showed that the supply was less than the demand. When the economic reform liberalized prices, there was serious inflation. Second, the impact of inflation on the economy When analyzing the impact of inflation on the economy, we must first distinguish between predictable inflation and unpredictable inflation. Predictable inflation is inflation that people can correctly foresee. In other words, the expected inflation rate is consistent with the actual value. Generally speaking, moderate inflation is predictable. Unpredictable inflation is inflation that people cannot predict correctly. In other words, the expected inflation rate is inconsistent with the actual value. When inflation can be expected, the problems brought by inflation to the economy are: first, the cost of leather shoes. During the period of inflation, the purchasing power of money is declining. In order to avoid this loss, people put more money in the bank, so they have to go to the bank several times. This kind of time and energy spent on going to the bank many times is called the cost of leather shoes by economists-grinding the soles more. Second, the menu cost. This is the cost that must be paid to adjust the price according to inflation. Third, tax distortion. The tax standard is determined according to the monetary income. When inflation occurs, if the tax standard remains unchanged and people's nominal income increases while their real income remains unchanged, then the actual tax paid increases. Fourth, people with fixed incomes suffer. Generally speaking, wages will also be adjusted with the expected inflation. Therefore, people who have jobs are not greatly affected by this inflation, but those who live on deposit interest or fixed income will suffer from the decline in the purchasing power of money. And the currency of the depositor's bank will depreciate.