 Asset market, money, prices, dear students, we are discussing the model of macroeconomy in this course, we are dividing our economy into three markets, labour market, goods market and asset markets. We have talked about labour market and goods market, so from today we will talk about asset market. Asset market, that is the market in which people buy and sell real and financial assets. The importance of asset market is very important indicator of the overall health of the economy and the potential vulnerabilities of the economies. Asset market is an indicator of the economy and an important indicator of the health of the economy and the weaknesses of the economy. So, impact on various aspects of macroeconomic performance. Asset market's performance is the impact on the various sectors of the economy. It has an impact on the consumption, investment and financial stability. So, our overall economic analysis is the importance of asset market. Asset market has two types of real and financial assets. Real assets are defined as tangible existence and intrinsic value, for example, land, building, machinery, equipment. Those things whose worth depend on their physical characteristics are real assets. Land, for example, building. So, their value worth will depend on their physical characteristics. And what are the financial assets in the scheme? Intangible instruments, representing ownership or claims to future cash flow. For example, money, stocks, bonds and treasury bills. These are the examples of financial assets. This means, for example, that there is a bond. So, the value of the bond depends on the physical characteristics of the building. What is the location of the building? What is the condition of the building? What is its strength and design? But, the value of a bond or currency note is also a financial asset. So, the value of the note of Rs. 1000 is dependent on the printing and design of the paper. It does not depend on its physical characteristics. It actually depends on the claim and ownership of the state bank. The state bank whose responsibility is to return this amount to you. So, this is the basic difference between physical assets and financial assets. We are taking an assumption to simplify our model. We are dividing total assets into two parts. Monetary assets and non-monetary assets. We are taking money in the monetary assets. We are taking money in the non-monetary assets. Apart from money, we are taking other financial assets and real assets. We are including all of them in the non-monetary assets. Now, we have divided our asset market into two parts. Money is its part and the other part is the non-monetary assets. So, economics has a simple rule. There are two markets. If there is one equilibrium between the two, the other will automatically be in equilibrium. So, if the money market is in equilibrium, it means that the non-monetary market will also be in equilibrium and the overall asset market will also be in equilibrium. So, the simple principle of economics of the money market is that the equality of demand and supply is the equilibrium of any market. So, when money supply and money demand are equal, it will imply that the whole asset market is in equilibrium. So, when all markets are in equilibrium, that is, your economy is at full employment level, then what will happen next? The output we have seen and discussed, the output is determined by the equilibrium of the labour market. In the labour market, the employment level is determined and the production function is determined by the output level. And the output is supplied to the goods market. So, the output is determined by the equilibrium of the labour market. The real interest rate is determined by the equilibrium of the goods market and the price level is determined by the equilibrium of the asset market. And the equilibrium price level is proportional to the nominal money supply. This is the price level and its relationship with the money supply. We will discuss this in detail, but I am just giving you an overview of the prices determined in the assets market. And the prices will be proportional to the money supply. Okay. So, I have told you that we are dividing our asset market in two ways, money and the other is non-monetary asset. So, we will discuss the money in detail. This is a concept. In its macroeconomics and early courses, we have discussed it in detail. So, let us take an overview-sized concept in this. Money is assets that are widely used and accepted as payment. So, the basic feature of money is that it is used as a medium of exchange. Okay. It is accepted for payments. So, in the functions of money, the medium of exchange is the basic function. The second is the important function. It works as a unit of account. And the third one is that it works as a store of value. So, let us take a look at the details of it. What is the meaning of the medium of exchange? Are you familiar with it? When there was no money, there was a barter system. The goods were directly exchanged. In return for the goods, the problems of the barter system were there. There is one thing about the double coincidence of bonds. And if you want something from it, you can search for a person who needs it. And if you want something from it, you can search for the person who has it. So, this double coincidence of bonds creates a lot of problems. Similarly, money allows people to trade their labour for money. Then use the money to buy goods and services in separate transaction. Every person provides their services in exchange for money. And the money they get from it, they buy the things they need from it. So, money thus permits people to trade with less cost and time and effort. So, in the absence of money, the problems of the barter system, you know that the transactions and trades will be cost-involved, the cost of time and efforts will be saved in the presence of the money. So, the benefit of money is that it allows specialization. So, people don't have to produce their own food, clothing and shelter. If there is no money, because there are many problems to fulfill their needs, then every person will try to fulfill their needs himself. Self-sufficient. Food, clothing, shelter, all these things. So, of course, you can guess what the problems will be. So, because of the presence of the money, every person specializes in some work. And the efficiency and the benefits of its specialization will be easy for the people. So, the second function is the unit of account. So, this is basically the first function. You can say that it is linked. When every person has to do his transactions in terms of money, then every person who has to sell his shares, will determine the value of his or her worth in terms of money. So, this will be your unit of account. Money is the basic unit of economic value. So, compared to this, it becomes easy. Every thing, i.e., there is a fridge that is of this size, there is a bike that is of this size, and every person is expressing his thing in terms of money. So, the comparison of how much a fridge is equivalent to a motorcycle, so on. So, that comparison becomes easy. All the prices, wages, and incomes. So, as I said, the unit of account function is closely linked with the medium of exchange function. So, countries with having high inflation may use a different unit of account. i.e., it can be that in one country, as a medium of exchange, one currency is being used, one money is being used, but as a unit of account, one other money is being used. Where will this happen? In the economy where inflation is very high, then the currency, the official currency of that country is used for the medium of exchange. But, since the prices are increasing very fast, to avoid that, they usually express their prices in a stable currency for the currency of that country. So, there may be a difference, but normally this unit of account and medium of exchange are done in the same currency. Third function is store of value. i.e., we use money as a store of value. To hold our wealth, to hold wealth, we keep wealth in different forms. Money is one of them. There are many forms. Your house, your car, your house's durable goods, gold and so on, stocks, shares, bonds. These are all the different forms of wealth. So, in parallel, one form is money. People store their wealth in the form of money. So, most people use money only as a store of value for a short period. We will read the details of this. Why do we keep money for a short period? Store of value, who has some benefits and costs. So, it is usually kept for a short period. For a long period, we keep our wealth in the form of our house, car or shares, bonds. We will read the details of this. So, in parallel, a person gets salary or money and he spends it in the month. So, in that period, he is also storing his wealth in the form of money. So, these were the basic things about money. In the next module, we will talk more. Thank you.