"Modeling Money" - Coursework Example

Modeling Money Money Models A person with the limited economic background would prefer ATM model of since it offersthem an opportunity to minimize the cost of holding cash by balancing the number of transactions from the ATM and with personal income and risk of holding cash (Malz, 2011). Therefore, a person can minimize the cost of holding cash by balancing the frequently of visit the ATM with income and other factors such as nominal interest fee and risk of keeping cash. It is unlike dynamic model that assumes the need for money is based on the prevailing economic conditions beyond their control such as nominal interest rate and inflation rate (Malz, 2011).

Also, it is unlike liquidity preference model that assumes all economic factors are constant hence the consumer’s decision to hold cash is dependent on supply and demand. Quantitative Easing Program Second quantitative easing (QE2) was a strategic government policy aimed at reducing the mortgage rate and Treasury yields, as well as increase economic stimulus through the large-scale purchase of assets. It led to the decline of yields on longer-maturity Treasuries and other securities following the Federal announcement of its intention to increase its holding of longer-term securities (Christensen & Gillan, 2014).

This may have been caused by expectations of a decline in risk premiums for longer-term debt securities. Also, the strategy may have had temporary effects of increasing market liquidity and lowering liquidity premiums for long-term investments. QE2 conforms to the liquidity preference theory that presume investors have a preference for premium for securities with longer maturity bearing the greater risk while they have a preference for holding cash since it involves minimal risk. ReferencesChristensen, J. H. E.

& Gillan, J. M. (July 2014). FEDERAL RESERVE BANK OF SAN FRANCISCO WORKING PAPER SERIES: Does Quantitative Easing Affect Market Liquidity? Retrieved on 11th 2015 from http://www.frbsf.org/economic-research/files/wp2013-26.pdfMalz, A. M. (2011). Financial Risk Management: Models, History, and Institutions. John Wiley & Sons.