Types of money:
1. Commodity money- a good that has other purposes that also functions as money.
Ex: african tribes using cows as money
2.Representative money- whatever you are using as currency represents a specific quantity of precious metal.
Ex: gold, silver
3. FIAT money- money not backed by precious metal, it must be money accepted by transaction, backed by the word of the government.
Ex: United States dollar bill
Three functions of money:
1. Medium of exchange- through money, exchanges happen
2. Store of value- when money is put away, you expect it to still have its same value
3. unit of account- price implies worth
Money market graphs:
-Vertical axis - interest rate (price) = i
-Horizontal axis- quantity = QM
-Demand for money slopes downwards = DM
-Why downwards? price is high = quantity demanded is low (vise versa)
Supply of money (SM) is vertical because it does not vary. It ties in with interest rate and fixed by FED.
Demand line -> = demand in more money, but decreases interest rates (vise versa)
*quantity doesn't change due to fixed SM
*SM moves right if the federal government doesn't want a high IR
The FED: Tools of money policy:
Expansionary (easy money):
-RR = decrease
-DR= decrease
-FED buys bonds
Contractionary (tight money)
-RR= increases
-DR= increases
-bank sells bonds
*Federal Open Market Committee makes market decisions
*Required reserve ratio is % of DD that can't be loaned out
Loanable funds graph:
-Horizontal axis- quantity of funds = QLF
-Demand of funds (DLF) = downward slope
*Why? IR is high = demand is low
- Supply of funds(SLF) = upward slope
*Demand curve -> increase in IR
Money Creation Process: creates money by making loans
-Money multiplier: 1/RR
-Multiple deposit expansion: money loaned out and put into another bank and the money used for different loan, cycle repeats.
*Reserve Requirement: % of the banks total deposits that has to be kept in reserves either loan cash or deposits.*multiplier x loan given = total amount money created
*higher excess reserve, less money created
Money Market, Loanable Funds, AD-AS:
*change in price = change in money supply
*increase demand for money = higher IR
*MV=PQ (change in M =change in P)
*Fisher effect: IR is proportional to price and change in inflation
I'm not sure if the video notes are combined with your notes, but you might want to make sure if you need to separate posts. Your margin links on the right side is very hard to read due to the matching of the cont color and the background. This makes it hard to navigate. I thought that your notes were well thought out and planned. I appreciate you including the videos with your notes, which is easy to refresh your mind on the topic.
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