Unit 4

This unit mainly covers money: The Demand for Money. Demand for money has an inverse relationship between nominal interest rate, and quantity of money demanded.

• When interest rates increase, the demand for money decreases. 
• When interest rates decrease the demand for money increases.

Fiscal Policy includes:

• Congress/President
• Taxing or spending $

Monetary Policy: 

• the FED
• Open Market Operations
• Federal Funds Rate
• Reserve Requirement

Key Principles: 

-a single bank can create money through loans, by the amount of excess reserves. 

-banking systems as a whole can create money by a multiplier. 

• When the initial deposit in a bank is in cash, the money supply has no change because only the composition of money changed. 
• When the initial deposit is by the FED purchase of a brand from the public, the money supply will immediately increase because money coming from the FED is new money in circulation.
• When the initial deposit is a bank purchase of a bond from the public, the money supply will immediately increase because monkey coming from bank reserves is new $.

Factors that affect the deposit multiplier:

• if banks fail to loan out all ER
• if bank customers take their loans in cash rather than in new checking account deposits. 

Open Market Operations- Expansionary: buy bonds, increase the money supply

Contractionary: Sell bonds, lower the money supply

Discount Rate- Expansionary: decrease money supply Contractionary: increase money supply

Reserve Requirement- Expansionary: decrease RR(bc theres not enough $) Contractionary: increase RR, increase $ supply.

Prime Rate- the interest rate thats given to a bank's most credit worthy customers from 0-4%. 

Loanable Funds Market- the market where savers and borrowers exchange funds at the rate of interest. 

Changes in Demand:

• More borrowing=more demand for loanable funds
• Less borrowing=less demand for loanable funds

Changes in Supply:

• More saving= more supply of loanable funds
• less saving= less supply of loanable funds

What the Graph looks like: 

Video 6

This video is about Money market, loanable funds, and AD-AS. The purpose of macroeconomics is to be able to show the relationships between those 3 markets. If you put all 3 graphs side by side, you can show the difference and relationships between the markets. Deficit spending is when the government borrows money. When someone buys government securities, that is you giving money to the government. In the money market, the demand for money increases, so on the graph, it shifts to the rate. The quantity stays the same. You can demonstrate that on the loanable funds graph by saying it reduces the national money supply level. You then show that demand is shifting to the right, and draw a new line to the right.

Video 5

This video is about Money creation process. First is thought the money multiplier. Second is multiple deposit expansion. The third is Banks create money by making loans. The video then demonstrates several example problems on finding RR, or how to use RR to find information. If banks have excess reserves, it will reduce the total amount of money.

Video 4

This video is about Loanable funds. (money available for people to borrow from banking system.) Price is on vertical axis, and quantity is on the x axis. Its the quantity of loanable funds. Demand for loanable is downward sloping bc when interest rate is lower, people demand more money. Supply of loanable funds is upward sloping. (Easy graph to start with) Supply of loanable funds is dependent on savings. The more money people save, the more money banks can use for loans. Demand graphs can show you if you made a mistake when creating the loanable funds graph. If the govt is running a deficit, then the government is demanding money in order to spend it. If money is demanding more money, then the demand graph shifts to the right.

Video 3

Video 3 talks about the the Fed's tools of monetary policy. There are 2 categories in which the tools fall in: Expansionary and Contractionary. Expansionary is easy money, while contractionary is tight money. The FED has control over the Reserve Requirement, which is the percentage of the banks total deposits. Lowering this makes more money available. This is not used often because it could corrupt the whole system. The next one is discount rate, which is the rate the banks can borrow from the fed. They pay it back. The fed is a lender of last resort. The third one is buying or selling government bonds and securities. This is not a form of stocks. To expand money supply, the fed buys bonds. To lower the money supply, the fed will sell bonds.

Video 2

Video 2
In the second video, the different parts of the money graph are explained. When the DM is downward sloping, it is because when price is high, quantity is low.The relationship between interest and quantity are inversely related. Demand for money is set by the FED; it is fixed. It does not rely on interest rate. Increasing the money supply stabilizes interest rates.

Video 1

Video 1

The first video is is about the 2 different types of money: Fiat money, commodity, and representative money. Fiat money is not backed by precious metal, but is still considered money. Its only money because the government says so. Representative money is money presented by resources such as metal, gold or silver. Commodity money has two purposes, such as purchasing salt or cow.
The 3 functions of money are:
-a medium of exchange
-it can store for value, but can also be stored in a bank
-it is a unit of account
These are the main topics that are covered in this video.

Unit 3

Unit Overview:
Aggregate Demand- shows the amount of Real GDP that the private, public, and foreign sector collectively devise to purchase each possible price level.
The relationship between the price level and Real GDP is inverse.
3 Reasons AD is downward sloping:
1. Real Balance Effect- when price level is high, households and businesses cannot afford to purchase as much output.
2. Interest Rate Effect- a higher price level increases the interest rate which tends to discourage investment.
3. Foreign Purchase Effect- a higher price level increases the demand for relatively cheaper imports.
Shifts in AD:
-change in multiplier effect
-change in C Ig G or Xn
Increases shift to the right
Decreases shift to the left
Aggregate Supply: is the level of Real GDP that firms will produce at each price level.
Longrun vs. Shortrun:
Longrun- period of time where inout prices are completely flexible and adjust to changes in price level.
Shortrun- period of time where input prices are sticky and do not adjust to changes in the price level.
LRAS- marks the level of full employment in the economy..
because input prices are completely flexible in the long run, changes in price level do not change firms, real profits, therefore don't change firms level output.
SRAS- because input prices are sticky in the short run, SRAS is upward sloping.
Determinants of SRAS:
-Input Prices
-productivity
-legal-institutional environment
Shifts: increase-right decrease-left
Investment Demand:
-the shape of the ID curve is downward sloping.
Why?
because when interest rates are high, fewer investments are profitable; when they are low, more investments are profitable.
3 Schools of Economics:
-Classical (Says Law…supply creates its own demand.)
-Keynesian (Demand creates own supply.)
-Monetary (gov't. can best control the health of the economy.)
Fiscal Policy: changes in the expenditure on tax revenues of the federal government.
-2 tools of fiscal policy:
-taxes- gov't. can increase or decrease taxes
spending- gov't. can increase or decrease spending.
Balanced Budget- Revenues=expenditures
Budget Deficit- revenues<expenditures
Budget Surplus-Revenues>expenditures
Discretionary Policy-
Expansionary: think…deficit! (recession)
Contractionary: think…surplus (inflation)
Non-Discretionary: no action
Automatic: unemployment compensation and marginal tax rate.
Discretionary- increasing or decreasing voernment spending and/or taxes in order to return the economy to full employment.