Video Summaries

Money Market: basic concepts

The types of money include commodity money, representative money, and fiat money. Commodity money is commodities that function as money (goods that have monetary value such as animals used for trade.) Representative money represents a quantity of a precious metal (ex. gold standard.) Fiat money is money which is not backed, has no value but the value we give it. The three functions of money are: money serves as a medium of exchange, money is a store of value, and money is a unit of account/ quality.

Money market graphs: The price paid to borrow money is interest. label the y axis price, the x- axis quantity. Demand always slopes down because when price is high demand decreases which is the law of demand. The supply of money is vertical because it doesn't vary based on the interest rate. it is fixed by the fed. increasing demand puts upward pressure on interest rate. If the fed wants to bring the rate down they increase the money supply which will stabilize interest rates.

The fed: tools of $ policy

Expansionary money policy (also called easy money) lowers reserve requirement, increases money supply. Contractionary money policy:(also called tight money) lowers RR and decreases money supply. reserve requirements are a % of the banks total deposits the banks must hold on to either as vault cash or it must be on reserve with a fed branch. excess reserves are used to make loans. The discount rate is the rate banks borrow money from the fed. lowering the discount rate creates money, raising it lowers money supply. Buying/selling govt bonds and securities: fed buying increases money supply, selling decreases MS. Federal open market committee makes decision to buy/sell. Federal funds rate is rate at which banks borrow from each other. 

Loanable  funds:

money available in the banking system for people to borrow. First label interest rate, price and quantity. demand is downward sloping, supply slopes upward. Supply of loanable funds depends on savings. if the gov is running a deficit it is demanding money in order to spend it, shifts right and increases interest rates. govt demands money its decreasing supply and increasing interest rates

Money creation process:

Banks create money by making loans. 1 of the feds tools for monetary policy is being able to adjust RR. Money multiplier is 1/RR. multiple deposit expansion creates money through loans. if banks hold excess reserves they diminish the amount of money potentially created. 

Relating the money market, loanable funds market, and AD-AS

The money market has interest rate on vertical axis, quantity of money on horizontal, demand slopes down supply is verticle and equilibrium is markets. Loanable funds has interest rate on vertical axis, same equilibrium interest rate, tie it into AD- AS. MV=PQ change in money = change in price.