Video over unit 4 - Monetery policy

Video 1

Type of money

• Commodity money - involves the use of an actual good in place of money.

• Representative money - is money that can be exchanged for a commodity at a fixed rate.

• Fiat money - is money that has no value except as the medium of exchange; there is no inherent or intrinsic value to the currency. 

Three function of money

• Medium of Exchange - is what people trade for goods and service.

• Store of value - is a means for holding wealth.

• Unit of Account - is the measure in which prices are quoted. 

Video 2

Money Market Graph

 

• Shift the supply curve (always vertical ) when the FED changes the money supply to change nominal
• As the interest rate increase, the quantity of money demand decrease.
• As the interest rate decrease, the quantity of money demand increase.

 

• The money supply curve only move to the left and right.

• The money demand line only move up and down.

Video 3  

Tools of Monetary policy

•  Expansionary monetary policy - occur when a central bank acts to increase the money supply in an effort to stimulate the economy. When the FED buys bonds, it injects new funds directly into the loan-able funds market. this action increases the supply of loan-able funds and decreases the interest rate.

• Contractionary monetary policy - occurs when a central bank acts to decrease the money supply. When the FED sells bonds, which pulls funds out of the loan-able funds market. This action decrease the supply of loan-able funds and increase the interest rate.

Video 4

The loanable funds market

 

• Supply loanable funds depend on savings.
• An increase in the supply loanable funds means the quantity will increase and the interest rate will decrease.
• A decrease in the supply loanable funds means the quantity will decrease and the interest rate will increase.
• The supply loanable funds only move to the right or left.
• An increase in the demand loanable funds means the interest rate will decrease.
•  A decrease in the demand loanable funds means the interest rate will decrease.

 

Video 5

Money Creation process

*Banks create money buy making loans.

• Reserve Requirement (RR) -  is the amount of money that is required by the FED that banks should keep on any deposit. 

RR = 20%                                                                                            Loan amount = $500

Question: Total $ created

$ multiplier =1/RR               1/0.2  = 5                         5*500=   2500

Video 6

Relating the money market graph, Loanable graph, AD - AS Graph

• An increase in the demand, will increase the interest rate and the price level.

* The supply line on left graph can only move left and right.

* The supply line on the middle and right graph move up and down.