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We are
Bonjour !
group 2
Sarasati
(05)
Tri Setya
(06)
Cahyani P.
(
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Money
and
the Economy
Money and the Economy
In an economy with
money, more or less
the amount of
money in circulation
determines whether
current economic
The money
activity supply is the
liquidity in the
Inflation Money and economy.
the Economy
Deflation
The quantity theory
The relationship between the money supply to economic activity has long been
recognized by the quantity theory as follows:
MV = Y
Where :
M = amount of money in circulation
V = the number of times the currency changed hands from one to another in a year
Y = national income
The amount of money circulating in the community consists of currency and demand
deposits and known as M1. In the modern economic system, quasi money is often
called money close growing rapidly. This quasi money in the form of savings, deposits,
credit cards and ATMs. At this time the money supply known as M2, which is M1 plus
quasi-money
,
VELOCITY
OF Review of quasi money, As in quasi money which
CIRCULATI which consists of savings, has V = 1, as well as the
deposits, ATM, credit card. situation on demand
ON (V) deposits.
Demand deposits likewise
In this case the money
used in the process of
converted into the currency
purchasing by using a
so that is having a quarterly check or giro.
cash transfer arm (V = 1).
Similarly, in the use of ATM Currency comprises of
and credit cards, quasi coins (denomination
money can used directly hundred, five hundred and
without converting it into one thousand) and
currency first.. banknotes. Typically, this
type of currency is
considered to have the
same rotation speed
Money Circulation Factors
The factors that affect the amount of money in
circulation is:
Monetary
Policy
Monetary policies
open market operations in
the money market (rupiah)
and foreign currency
determination of minimum
mandatory reserves
determination of discount
rate
credit or financing
arrangement
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SBI
Selling SECURITIES Buying
TERM DEPOSIT
(high FOREIGN CURRENCY (low
liquidity) liquidity)
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Minimum Reserves Ratio/ Giro Wajib
Minimum
Political Discount /
Politik Diskonto
Bank Indonesia is also
implementing monetary
policy framework through
the control of interest
rates (interest rate
target). Interest rate,
known as the BI rate,
determined by the Board
of Governors of Bank
Indonesia every month.
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Another Policy
Institution of
Monetary
Policy
OLD ORDER
1960 1965
The banking sector or the formal financial
sector in Indonesia in the first years in the
Soekarno government consists of:
The Value of
Money
Inflation
Inside the state, the value of the rupiah currency is
determined by its purchasing power, the ability of money
to acquire goods or services. For example, if the amount
of goods and services that can be exchanged for one
unit of currency rupiah (say $ 10,000.00) is as much of x
units, and in the next year it get y units, and if x <y,
then it is said that rupiah rose. Conversely, if x> y, then
said the rupiah is declining. In everyday circumstances,
the rupiah value that declined to goods and services,
generally said that the price of goods and services have
increased. Such circumstances is called inflation. The
opposite situation is called deflation. But in this case, we
will only discuss inflation because inflation is more likely
to occur.
Simply, inflation is defined as rising prices in general and
continuously. Indicator that is often used to measure the rate of
inflation is the Consumer Price Index (CPI). Other inflation indicators
based on international best practice among other things are:
- Wholesale Price Index
Wholesale price of a commodity is the price of the transactions that
occur between the seller / trader with the next first major buyers /
traders in large amounts in the first market of certain commodities.
- the Gross Domestic Product deflator (GDP)
GDP describe the measurement of final goods price level (final goods)
and services produced in a country. GDP deflator is generated by
dividing the GDP at current market prices to GDP at constant prices
for the year in question. Deflator index is also known as the implicit
price index.
Say in America, the value of the US dollar rose against the rupiah as follows:
US $ 1 = US $ 9500 to US $ 1 = Rp 9600
Incidentally, in Jakarta, written in the same manner as above. Let's say that
the foreign exchange market in Jakarta also showed the same price as above.
To simplify the figure, say a unit of Indonesian rupiah is Rp 10,000. Then, in
Jakarta, it should be recorded as :
From $ 1 unit = US $ 1.0526 to Rp 1 unit = US $ 1.0417
Notes of foreign exchange rates indicate that the value of the rupiah which was
originally able to get US $ 1.0526 down to only get US $ 1.0417 for each unit.
It showed that the US dollar has appreciated (rate
increases) and the Indonesian rupiah depreciates
(impaired). Rise and fall of the value of a foreign
currency relative to other currencies are determined by
the forces of demand and supply is referred to as the
appreciation (if it rises) and depreciation (if it dropped).
By contrast, if the change in value of a currency against
foreign currencies is because because of government
policy, which is said to devaluation (if down) and
revaluation (if it rises). However, we will only discuss
about a devaluation in this case, because devaluation
are more likely to happen recently.
There are two ways to determine foreign exchange rates, namely:
Mint Parity
Each currency has collateral in central bank, which is in the form of gold
and other precious metals coupled with securities and convertible
foreign currency (which is easily exchanged for money). All warranties
contained in a currency is synonymous with noble metal content (mint)
on the money. The content of the guarantee on the currency indicate
their respective values, and when both are compared it will obtain the
value of a particular currency relative to other currencies.
Purchasing Power Parity
It is obtained by comparing the purchasing power of the currency in
each country, which is indicated by the consumer price index. So,
comparing the two country's consumer price index (with the same base
year) will acquire the currency exchange rate of the country relative to
other currencies.
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