Types and Functions of Money – Part 1
She explains the 3 basic money markets that are used the
most today and functions of money. One is commodity is anything that can be
used to function just like money. Second type is representative money is any
money that is being used is represented as a specific of a precious metal.
Moving away from the gold currency because of the great the depression because
wasn’t stable enough back then. Lastly, Fiat money it is not backed up by legal
money that is accepted, backed by the government that it has value. Money is
medium of exchange is buying things, store of value, and is when you store it
you hope there is still some value in it. Money is a unit of account is look at
the price that implies to worth.
Money Market Graph – Part 3
Practice drawing the money market. Vertical axis, price
(interest rate, i), horizontal, quantity of money (QM). Demand slopes downward
because when the price is high the QM is price is low. People borrow more. Supply
is set by the fed put the quantity equilibrium and interest rate. Unless changed by the Fed then it changes.
When you increase demand it fluctuates puts pressure on interest rate. If the
Fed wants to go back to the interest rate.
The Fed’s Tools of Monetary Policy– Part 4
Two options that are tools of monetary policy. Expansionary
(Easy Money) and Contractionary (Tight Money) .RR or required reserve is where
the amount of money that must be kept in the bank, vault cash or put into a
close Fed Bank. If fed wants to increase or decrease they lower the reserve
requirements. It becomes ER. If they want to retract in contractionary than it
increase the RR. Secondly is the discount rate, the interest rate that are
given to them by the Fed. If they want to let banks borrow money than it lowers
in expansionary, but if discourage banks from borrowing money which raises it
in contractionary. Lastly the video talks about buying/selling bonds/securities
to expand the money supply the fed buys, you have to know which direction it
goes. To contract bonds/securities you sell. FOMC choose these decisions. The
federal funds rate is at the rate where banks burrow from each other.
The Loanable Funds Market – Part 7
Loanable funds money that is available for the public to
use. The graph is the same as the money market. But at the bottom put quantity
of loanable funds. Supply loanable funds goes upward, comes from the amount of
money from savings. In this market saving is good in loanable funds. By
increasing interest rate in the loanable fund graph should increase in demand.
Money Creation and Multiple Deposit Expansion – Part 8
The money creation process is by banks create money by
making loans. Adjust and control the reserve requirement is the percentage of the
banks total deposit in Fed or bank deposits. The money multiplier is 1/RR. All
the banks in this process there is no excess reserves. If the bank holds excess
reserves it will reduce your total.
Relating the Money Mkt., Loanable Funds Mkt., and AD-AS –
Part 9
Money market supply money is straight up and down and does
not move unless the Fed has made a change to do so. Loanable funds has the same
but supply loanable funds goes upwards. AD-AS graph has the curve of vertical
range and upward range. Horizontal is GDP and price level with inflation in
mind. Loanable funds can either changed in demand or supply, be able to explain
why you shifted in the direction. Fisher effect is interest rate must have a 1
% price level. Ties into interest to price level.
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