2. 2
Ten
Principles
of
Economics
Ⅰ.How
People
Make
Decisions.
1:People
Face
Trade-‐offs.
2:The
Cost
of
Something
Is
What
You
Give
Up
to
Get
It.
3:RaIonal
People
Think
at
the
Margin.
4:People
Respond
to
IncenIves.
Ⅱ.How
People
Interact.
5:Trade
Can
Make
Everyone
BeNer
Off.
6:Markets
Are
Usually
a
Goodway
to
Organize
Economic
AcIvity.
7:Governments
Can
SomeImes
Improve
Market
Outcomes.
Ⅲ.How
the
Economy
as
a
Whole
Works
8:A
Country's
Standard
of
Living
Depends
on
its
Ability
to
Produce
Goods
and
Services.
9:Prices
Rise
When
the
Government
Prints
Too
Much
Money.
10:Society
Faces
a
Short-‐Run
Trade-‐off
between
InflaGon
and
Umemployment.
4. Money
in
economcis
• The
term
money
refers
to
assets
that
people
regularly
use
to
buy
goods
and
services.
– As
a
medium
of
exchange,
it
provides
the
item
used
to
make
transacIon.
– As
a
unit
account,
it
provides
the
way
in
which
prices
and
other
economic
values
are
recorded.
– As
a
store
of
value,
it
provides
a
way
of
transferring
purchasing
power
from
the
present
to
the
future.
5. Central
Bank
• An
insItuIon
designed
to
oversee
the
banking
system
and
regulate
the
quanIty
of
money
in
the
economy.
• Central
bank
has
two
related
jobs.
– The
first
is
to
regulate
banks
and
ensure
the
health
of
the
banking
system.
– The
second
and
more
important
job
is
to
control
the
quanIty
of
money
that
is
made
available
in
the
economy,
called
the
money
supply.
6. Monetary
policy
• Decisions
by
policy
makers
concerning
the
money
supply
consItute
monetary
policy.
• Central
bank’s
primary
tool
is
the
open
market
operaIons.
– If
the
FOMC
decides
to
increase
the
money
supply,
central
bank
creates
dollar’s
and
uses
them
to
buy
government
bond’s
from
the
public
in
the
naIon’s
bond
markets.
7. How
do
money
transmit
to
the
public
by
monetary
policy?
8. Transmission
mechanism
of
monetary
policy
Central
bank
Bank
Bank
Bank
Bank
Open
Market
Company
Company
Individual
individual
Government
bond
Money
lending
Principal
and
interests
TradiIonal
monetary
policy
10. InflaIon
targeIng
• Under
inflaIon
targeIng
,
central
bank
would
announce
a
target
for
a
the
inflaIon
rate
and
then
adjust
the
money
supply
when
the
actual
inflaIon
rate
deviates
from
the
target.
• In
addiIon,
an
inflaIon
target
has
the
poliIcal
advantage
of
being
easy
to
explain
to
the
public.
11. 2013/07/21
QuanItaIve
easing (QE)
• QuanItaIve
easing (QE)
is
an unconvenIonal
monetary
policy used
by central
banks to
sImulate
the
naIonal
economy
when
convenIonal
monetary
policy
has
become
ineffecIve.
• A
central
bank
implements
quanItaIve
easing
by
buying financial
assets from commercial
banks and
other
private
insItuIons
with newly
created
money in
order
to
inject
a
pre-‐determined quanIty of
money
into
the
economy.
• This
is
disInguished
from
the
more
usual
policy
of
buying
or
selling government
bonds to
keep
market
interest
rates
at
a
specified
target
value.QuanItaIve
easing
increases
the excess
reserves of
the
banks,
and
raises
the
prices
of
the
financial
assets
bought,
which
lowers
their yield.
