Video Notes

Video 1: Types and Functions of Money 

3 types of money 

• Commodity – goods that act as money

• Representative – coins and dollars 

• Flat money – government’s word 

3 main functions 

• Medium of exchange 

• Storage of value 

• Unit of account 

Video 2: Money Market Graphs 

Money supply 

• Constant b/c it is controlled by the interest rates and gov’t. 

• Vertical b/c it’s not based off of interest rates 

• Increase demand = increase interest rates

The law of demand – if the price is high quantity demanded is low, if price is low quantity demanded is high

Video 3: The Fed’s tools of monetary policy 

The gov’t uses two options regarding changes in the money supply

• Contractionary (tight money)

• Expansionary (easy money) 

Contractionary fiscal policy 

• Reserve rate will ↑

• Discount rate will ↑

• Gov’t will sell bonds and securities 

Expansionary fiscal policy 

• Reserve rate will ↓

• Discount rate will ↓

• Gov’t will buy bonds and securities 

Video 4: The Loanable funds Market 

Loadable funds graph 

• Supply curve is completely dependent on saving

• If more people save, then more loans are available 

• If gov’t is in a deficit then demand for loans will increase, which leads to a decrease in supply of loans 

Video 5: Money creation and multiple deposit expansion 

Money is created when banks make loans 

To find how much money a loan creates you must:

• Find the multiplier – (1/RR)

• Multiply by the loan amount = multiple deposit expansion 

Example

• RR = 20% 

• (1/.2)=5

• 5(500) = 2500

Video 6: Relating Money market, Loanable funds Market, AD/AS model

Exchange : MV = PQ

• Increase in demand for money increases price level 

• Increase in demand for money increases interest rate, which causes the demand curve to increase resulting in the price levels to increase as well as GDPr  in AD/AS graphs