Video 1:
There are three types of money: commodity, representative,
and fiat. Commodity money is money that is made of goods with another purpose.
For example, cows, which have many uses other than money, were used as a type
of money in Africa. Representative money is currency that is backed up by a
precious metal, such as gold or silver, and is often unstable. Fiat money, the
type of money we use today, is backed up by the word of the government. The
three functions of money include being a medium of exchange, a store of value,
and a unit of account. Being a medium of exchange allows money to be used in
transactions. Being a store of value states that you can store your money, but
it won’t be stable due to inflations. Being a unit of account allows price to
imply worth, meaning that an item that is more expensive might mean that it is
of higher quality, even though this may not always be true.
Video 2:
In the money market graph, the y-axis is the interest rate
the price you pay for money, and the x-axis is your quantity of money. The
demand for money is downward sloping because when the interest rate is low,
people have an incentive to borrow and invest more. The supply of money is
vertical because it does not vary with the interest rate; it is fixed by the
Fed. An increase in the demand of money creates upward pressure on the interest
rate, but the quantity of money stays the same. If the Fed wants to stabilize
the interest rate, the Fed can increase the supply of money, returning the
interest rate back to what it was. If the interest rate is unstable, you cannot
manipulate aggregate demand to give you the right economic change at the right
time.
Video 3:
The Fed has three tools of monetary policy: changing the
reserve requirement, changing the discount rate, and buying/selling
bonds/securities. The RR is the percentage of the bank’s total deposits
required to store as vault cash or on reserve at a Fed bank. The Fed does not
change this often because it gives banks too much control on the money and it
may be used irresponsibly. The discount rate is the interest rate that banks
borrow from the Feds. This is not changed often because the Fed lowering the
discount rate does not guarantee the banks will borrow the money. There is no
guaranteed change in the money supply. Buying/selling bonds is the most used
and effective way that the Fed changes the money supply. Buying/selling bonds
puts upward or downward pressure on the Federal Funds Rate, the rate at which
banks borrow money from each other.
Video 4:
Loanable funds is the money available for people to borrow.
In this graph, the y-axis is the interest rate and the x-axis is the quantity
of loanable funds. The demand for loanable funds is downward sloping because
when interest rate is lower, the demand for loanable funds is higher. The
supply of loanable funds is upward sloping and comes from the amount of money
people have in banks; it is dependent on savings and how much banks have
available. If the government is running a deficit, then the government is demanding
money in order to spent it. This increases the demand for money on the money
market graph, increasing the interest rate. The interest rate in the loanable
funds market also increases, either due to a increase in the demand for
loanable funds or a decrease in the supply of loanable funds. Either way, the
increase in the interest rate for loanable funds should be the same as the
increase in the interest rate for money.
Video 5:
In the money creation process, banks create money by making
loans. The monetary multiplier equals 1/RR and the total money created equals
the monetary multiplier multiplied by the loan amount. This makes up multiple
deposit expansion. However, we must make the assumption that there are no
excess reserves. If there are excess reserves, it will reduce the total amount
of money created.
Video 6:
The loanable funds market, the money market, and the AD-AS
graph are all connected. For example, when the government borrows money from Americans,
the demand for money increases in the money market, increasing the interest
rate. The demand for loanable funds also increases, also increasing the
interest rate by the same amount. Lastly, aggregate demand increases,
increasing the price level of goods. This results in the Fisher Effect, where
an increase in the interest rate equals the same increase in inflation or price
level.
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