Macroeconomcs Video Responses

AP Macroeconomics Unit 4 - Part 1

Three Types of Money

1. Commodity: a good that has other purpose but functions as money. ex: cows as money in some tribes of Africa
2. Representative: the currency represents the value of a precious money. ex: gold backing up money during the Gold Standard. Drawback: when the value of the money changes, it affects the value of the currency.
3. Fiat: money backed by the word of the government that it has value. 

Functions of Money

1. Medium of Exchange
2. Store of Value- subject to inflation
3. Unit of Account- price implies worth/quality

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AP Macroeconomics Unit 4 - Part 3

Money Market

-graphing: 

• interest rate (price) = y-axis
• quantity = x-axis
• Demand slopes downward! (according to law of demand)
• Supply of Money is vertical
• because it is fixed and set by the Fed
• Don't forget quantity equilibrium and interest rate
• Money Supply is the same even as demand shifts (unless changed by the Fed). If demand shifts and you want to keep interest rate the same, you must shift money supply accordingly.
• Fed wants to try to keep interest stable so they may predict level of investment, consumer spending, and manipulate aggregate demand.

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AP Macroeconomics Unit 4 - Part 4

Three Tools of Monetary Policy

	Expansionary (Easy Money)	Contractionary (Tight Money)
Government Bonds / Securities	Buy  (“Buy Bonds = Big Bucks”)	Sell
Reserve Requirement	↓	↑
Discount Rate: interest rate that Fed charges banks when loaning to banks	↓	↑

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AP Macroeconomics Unit 4 - Part 7

Loanable Funds

-Supply of loanable funds (S_lf) = dependent on savings

increase of interest rate = decrease supply or increase demand

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AP Macroeconomics Unit 4 - Part 8

Money Creation Process

-Money multiplier = 1 / RR

-multiple deposit expansion

How Banks and Thrifts Create Money
-Assets (own) = Liabilities (Owed) + Net Worth (balance sheet)
-Bank deposits are subject to a reserve requirement
-Reserve ratio = Commercial bank's required reserves/Commercial bank's checkable-deposit liabilities

-Excess Reserves = Actual Reserves - Required Reserves

Banks create money by:
1. Lending excess reserves & destroy it by loan payment
2. Purchasing bonds from the public also creates money

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AP Macroeconomics Unit 4 - Part 9

Money Market, Loanable Funds Market, and AS & AD model deficit spending- increase demand for money (money market), increase demand for loanable funds or decrease supply (loanable funds market, increase in price level and GDP (AS and AD model)
 Fisher Effect: there is a 1:1 direct ratio between price and interest