What is a cash model?

The monetary model is a way to describe the money side of the economy: the interaction between people's expenses and the offer of money the government creates. Politics creators use these models to understand the effects that will have their decisions on the economy. These models are particularly important in predicting exchange of exchange courses as a result of monetary policy. Another is a fiscal policy that uses government expenditures in various sectors to promote economic growth. When the government uses monetary policy, it focuses either a certain level of money inventory or a certain interest rate. Politics creators use a cash model to estimate the effect of changing monetary policy on other economic variables.

There are two main types of currency models that policy creators use to model exchange rate behavior. One of them is a flexible cash model that assumes that prices immediately respond to currency policy changes. In a flexible model, the parity of purchasing power is assumed, which means that a certain amount of currency by buying youThe amount of goods as any amount of currency for which you can replace. This means that when prices adapt to new policies, exchange rates will also change.

The second type of currency model is the model of the sticky price. According to this type of model, when changes in national monetary policy are announced, prices do not respond immediately. These are reasonable expectations, because traders respond relatively slowly to investment reports and often hold prices at a relatively stable level to prevent customers' alienation. However, exchange rates are quickly adapted because they are determined by investment behavior and investors are sensitive to policy changes. Thus, under this type of model, changes in money supply affect the real income of people.

Like all models, cash models are simplified ways of representing real behavior. To make the model effective, it must be complicated enough to provide the usefulno results. But to be understandable, it must be simple enough. The more complicated the model is, the closer it is to the real world, but the cause of the observed effects is more difficult to determine in more complicated systems.

Using forecasts of a monetary model, the government can adjust its monetary policy to achieve its goals using different methods. One of the common methods is carried out by the Central Bank of the Earth, which controls the cash supply. Table employees on the basis of a policy creator can buy or sell bonds to close or expand their cash supply. The government can also change the interest rate for which it lends money to banks, which acts as a comparative rate for other loans.