00:01
So here i can't see the matching four graphs of money demand and money supplies.
00:05
So i'm just going to draw the money demand and money supply for each of these things.
00:10
The key thing is that money supply is usually fixed.
00:13
We usually draw that as a vertical line, right? and we draw the demand sloping down, right? why do we do this? well, the money supply is vertical because it is controlled by the fed, right? the fed controls the supply of money into the economy.
00:29
They're the people who create money.
00:31
They're the ones who determine how much money is out there.
00:36
They have control over it, right? if you're a private bank, you can't print your own dollar bills.
00:41
Someone's going to come through you in jail.
00:43
The demand, so the supply of money can be set independent of the interest rate.
00:48
It can be set to whatever the fed wants it to be.
00:50
But conversely, the demand for money is downward sloping because the interest rate is bad for, right? the interest rate is the cost of holding money.
01:07
When interest rates are high and money doesn't pay interest, it means you're giving up a lot of money by choosing to hold money instead of a financial asset.
01:17
So here, for the first one, the demand is going to increase, right? the demand is going to increase because, oh, sorry, decrease, more widespread use of mobile wallets.
01:31
My bad, decrease.
01:36
People are going to need less cash in this situation, right? the mobile wallets being available means that more cash stays within the banking system.
01:47
It means that cash circulates more quickly.
01:50
It means that you need to carry a lot less cash with you, right? instead of carrying cash, you can sort of hold on to bank deposits or other financial products instead of cash, right? the rise of mobile wallets is going to decrease the need you have for actual physical cash, which will decrease the demand to hold money, right? holding money doesn't mean how much money you use, it means how much money you sit on and do nothing with, right? so these mobile wallets are going to decrease how much money you sit on.
02:26
You're going to carry a lot less cash in your pocket.
02:30
So fewer reserves ratios are going to, increase the supply of money, right? the supply of money is going to increase because it frees up more reserves for the banks to lend out and create money...