*Basic concepts.
There are 3 different types of money.
1.commodity money (most primitive)
2. Representative money
There are 3 different types of money.
1.commodity money (most primitive)
2. Representative money
3. Fiat money
there are 3 functions of money
1. Money is a median of exchange
1. Money is a median of exchange
2. Money has a store of value
3. Money is a unit of account (which implies price has more worth, with higher quality.
*Money market graph.
Always label your axis correctly. Interest rate with an I on the vertical line and Qm on the horizontal line. Demand (Dm) slopes down. Because when the price is high, quantity demanded is low. The supply of money is vertical, because it does not vary depending on the interest rate. (which is set by the fed). Increasing, you would shift to the the right. And vice versa for decreasing.
*The fed tools of monetary policyexpansionary(easy money)
fed has control over the required reserves. They can decrease it. The fed can decrease the discount rate
buying and selling bonds and securities. To expand the money supply, the fed buys bonds
contractionary(tight money)
3. Money is a unit of account (which implies price has more worth, with higher quality.
*Money market graph.
Always label your axis correctly. Interest rate with an I on the vertical line and Qm on the horizontal line. Demand (Dm) slopes down. Because when the price is high, quantity demanded is low. The supply of money is vertical, because it does not vary depending on the interest rate. (which is set by the fed). Increasing, you would shift to the the right. And vice versa for decreasing.
*The fed tools of monetary policyexpansionary(easy money)
fed has control over the required reserves. They can decrease it. The fed can decrease the discount rate
buying and selling bonds and securities. To expand the money supply, the fed buys bonds
contractionary(tight money)
They increase the required reserves. They can increase the discount rate.
If the fed wants to contract or reduce the money available they would sell bonds.
Remember: buy bonds=big bucks. And FOMC is in charge of that.
*loanable funds
Remember: buy bonds=big bucks. And FOMC is in charge of that.
*loanable funds
Your y axis on a loanable funds graph is I (interest rate). On your x axis is QLF which is quantity of loanable funds. And demand for loanable funds (which is DLF) is at a downward slope. Demand slopes down, supply slopes upward. Supply of loanable funds (SLF) comes from the amount of money people have in banks and also depends on savings. If people have an incentive to save more, then you can increase the supply of loanable funds and vice versa.
If the government is running a deficit, that means the government is demanding money in order to spend it.
*money creation process
banks create money by making loans.If you want to know the total money created after they give you the reserve requirement and the loanable amounts, you have to know the money multiplier. The money multiplier is 1/RR. And you would get something high or so because of multiple deposit expansion.
* money market, loanable funds, and AD-AS
deficit spending, in the money market, money demanded would increase because the government is borrowing it. In loanable funds, deficit spending will also increase (even though it can both ways). Lastly, since deficit spending affects government spending, it will increase aggregate demand (AD). A change in the supply of money will be a change in price. Excluding the Q in the formula MV=PQ. Making it the fisher effect (has to be equivalent).
If the government is running a deficit, that means the government is demanding money in order to spend it.
*money creation process
banks create money by making loans.If you want to know the total money created after they give you the reserve requirement and the loanable amounts, you have to know the money multiplier. The money multiplier is 1/RR. And you would get something high or so because of multiple deposit expansion.
* money market, loanable funds, and AD-AS
deficit spending, in the money market, money demanded would increase because the government is borrowing it. In loanable funds, deficit spending will also increase (even though it can both ways). Lastly, since deficit spending affects government spending, it will increase aggregate demand (AD). A change in the supply of money will be a change in price. Excluding the Q in the formula MV=PQ. Making it the fisher effect (has to be equivalent).
I like your blog but it's very vague. There is not much explain in or reasoning there are just blunt answers. For example you can go mor in depth about representative money and how an example if it would be an IOU. Hope this helps!
ReplyDeleteIf I was you I would have included more about how it applied to the AP exam. Also how all of the graphs tied into together! For example Change in demand is easier to show in the loanable funds graph. In the money market the government is borrowing money, and then in the loanable funds market the demand for loanable funds in creases and then in AD-AS aggregate demand will increase so their will be an increase in price level and and an increase in GDP. This is a prime example on how all of these graphs tie together.
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