Unit 4 Video Notes

Video 1

This video went over two aspects of money. It first talked about the types of money listed as commodity, representative, and fiat money. Commodity money is a thing that has an independent function without being used as money while representative money is something that represents a valuable metal. Fiat money is money backed by the government. Functions of money include being a medium of exchange, store of value and unit of account.  The first two functions mean to use money to purchase something and save it for later. The unit of account means that the price of a product implies its worth.

Video 2

• The money demand slope is negative since the relationship between interest rates and quantity of money are inversely related. 
• The money supply line is vertical because it is not affected by the interest rate. It can only change by the Fed. 
• In order to control interest rates, the money supply has to be manipulated. 
• Instability in interest rates leads to instability in investment and spending which leads to uncertainty in changes in aggregate demand.

Video 3

• Reserve ratio is a tool of the Fed in monetary policy. 
• Lowering it is seen in expansionary policy while raising the ratio is seen in contractionary policy. 
• It is less used compared to other tools. 
• The Discount Rate is another tool which is the interest rate the Fed charges to banks when the Fed lends out money. 
• It works similarly to reserve ratio in how the Fed uses it. 
• It does have a low impact. 
• Bonds and Securities are another tool of monetary policy. 
• Buying them is a part of expansionary policy while selling them is a part of contractionary policy. 
• These actions fall under open market operations.
• Federal funds rate works between fellow banks and not the Fed. It is the rate at which they borrow from each other.

Video 4

• Loanable funds is the amount of available money that people can borrow. 
• The demand for loanable funds is downward sloping just like the money demand slope. The supply of loanable funds is based on savings. 
• The supply shifts based on peoples' incentive to save. 
• Government deficit spending is shown by an increase in demand of loanable funds. To show an increase in interest rates, a decrease happens in the supply of loanable funds.

Video 5

• The money creation process explains the spending in an economy. 
• Money is created by making loans. 
• The loan amount multiplied by the money multiplier shows how much money is created. 
• In order to use the formula to find the amount of money created, the reserve requirement needs to be known. 
• The process works assuming that banks hold no excess reserves. Otherwise, the final amount will decrease.

Video 6

• Deficit spending affects the money market, the loanable funds market, and the aggregate demand and supply curve. 
• The demand for money increases. 
• The demand for loanable funds increases or the supply of loanable funds decreases.
• Aggregate demand will increase.
• A change in the supply of money influences the price level.
• Fisher Effect - Interest rates and inflation change at the same rate.