video notes

Unit 4 part 1

Money MKT
-types of money

• commodity money-a good that has another purpose. It can stand for money
• Representative Money-what every you use as currency represents a specific quantity of a purchased money. Ex: Backed by gold or silver.. when the value of the metal changes so does the money. It wont be stable
• Fiat money-not backed by metal. Backed up by the word of the government

-functions of money

• Medium of exchange- Medium ( substance through. witch are passed) Through money things happen.
• Store of value-put money away you expect it to be stable
• Unit of account-we think price=worth. If something cost more we think we are getting more for our money. We assume prices implies worth.

Unit 4 part 3

Graphs

 1 Axis

• Vertical- price that is paid to get money- interest rate
• Horizontal- Quantity money

2. Demand slopes down WHY?

• when price is high quantity demanded is low
• when price is low quantity demand is high
• LAW OF DEMAND
• when interest rate is low we have an incentive to borrow more

3. Supply of money is vertical WHY

• does not vary based on the interest rate. (Set by the feds)

Manipulation of the graph

• incentive for more money: increase the demand for money
• Upward pressure on interest rate
• Quantity is the same because supply is fixed (vertical)

2 ways to think about the money supply:

                1. In terms of quantity

    2. In terms of interest rates

Fed tries to stabilize interest rate, because if interest rate is unstable you can’t predict level of investment, consumer spending or manipulate aggregate demand

Unit 4 part 4

The fed: tools of Money policy

-Expansionary money ( easy money)

• RR- Lowering  puts more available money for loan
• Discount rate ( when the bank borrows money from fed)- Lowered: encourage borrowing
• Buy/sell bonds/securities- Buys bonds public gets the money. "BUY BONDS=BIG BUCKS"

-Contractionary money ( tight money)

• RR-Higher: less money to loan
• Discount rate: Higher: discourages borrowing
• Sell Bonds: feds takes the money witch means less for the people

Unit 4 part 7

Lon-able funds- money that is available in the banking system for people to borrow

GRaph

SLF - comes from the amount of money in banks. Dependent of savings

•  Government deficit in loanable funds market can shown two ways: increase in demand or decrease in supply.

Unit four part 8

• Bank creates money by making loans
• the feds control rr
• Multiplier: 1/RR
• EX: RR: 20%. The bank make a loan of $ 500. How much money total will be created? 
• 1/.2=5 X Loan=$2500
• Bob gets $500 -> Bank
•  Loan to Joe, $400 -> Bank
• Loan to Suzie $320 -> Bank

                                                 Add ALL potential loans ($2500)               *

Unit four part 9

• Change in supply of money is equivalent to change in price.
• Fisher Effect - interest and price level are connected. As interest goes up, price level also goes up. 
• Ex: 1% increase in interest = 1% increase in price level.