Video 6

http://www.youtube.com/watch?v=k37Y6BKcpsY&feature=bf_next&list=PL2CB281D126F65E26&lf=results_video

         In the 6th video, the discussed about money market, loanable funds, and the AD-AD graphs. They should all be side by side in order to see the change in demand or supply. The MV should always be equal to PQ. Increasing interest rate drives an increase in price level, they call this the fisher effect. The walker effect explains how for every cookie you eat, thats one less cookie.

Video 5

http://www.youtube.com/watch?v=1tUC59pz95I&feature=bf_next&list=PL2CB281D126F65E26&lf=results_video

         In the 5th video , they discussed about the Money Creation Process. The way banks create money is by making loans. Multiplier and multiplier desposit expansion both fall under the creating process. Reserve Ratio is the percentage of banks total requirments. The process of the multiple deposits is to add up all the potential loans. But this is only an assumption, from all the banks thats have no excess reserves.

Video 4

http://www.youtube.com/watch?v=rdM44CC0ELY&feature=bf_next&list=PL2CB281D126F65E26&lf=results_video

          In video 4, they discussed about loan-able funds. When the interest rate is low, people demand more money. The DLF line is always down ward sloping. When the interest rate is higher, people have an instinct to borrow, this discourages the government.
         The SLF- is the amount of money people have in the bank, it is dependent on savings. The more money people save, the more money banks have available to make loans. Who would they loan the money to? The answer is future businesses, and customers etc...

Video 3

http://www.youtube.com/watch?v=XJFrPI8lLzQ&feature=bf_next&list=PL2CB281D126F65E26&lf=results_video

 

          In video 3 they explain the FED: Tools of Money Policy. It can be divided into three part but they have 2 options which are expansionary and contractionary money policies.  Expansionary has easy money, the Reserve Requirement and Discount Rate decreases, while in contractionary they both increase. To expand the money supply the FED buys bonds, when trying to contract the money supply the FED will sell bonds

Video 2

http://www.youtube.com/watch?v=gzFdeM6lUno&feature=bf_prev&list=PL2CB281D126F65E26&lf=results_video

 

In video 2, they explain the different parents in the money market graph. The DM is downward sloping because when the price is high the quantity of demand is low. The relationships with quantity and interest are inverse. The supply of money does not vary on interest rate. Demand for money is fixed, it is set by the FED. Increasing the money supply, stabilize interest rates.

Video 1

http://www.youtube.com/watch?v=YLsrkvHo_HA&feature=results_video&playnext=1&list=PL2CB281D126F65E26

 

        In the first video on the list, they explain how there is three different types of money. Commodity,  representative, and fiat money are all forms of exchange for goods. Commodity is a good that has ither purposes such as salt or a cow. Representative money is whatever we are using as currency represented by a precious metal, such as gold or silver. Fiat money is different because it is not backed by a precious metal, but it is still accepted by transactions. Fiat money is only money because the government says it has value.
        There are only 3 functions of money, the first function is that it's a medium of exchange.  The second function is that is can store for value, by saving or putting it away in a bank. The third function is to be the unit of account, which is that the price of an object has the ability to us judge what is the worth of value or quality.
        These are the main idea's spoken in video 1.

Demand for Money

Demand for Money had an inverse relationship between nominal interest rate and the quantity of money demanded

1. What happens to the quantity demand of money when interest rates increase, it DECREASES
2. What happens to the quantity demand when interest rates decreases, it INCREASE

Fiscal 

• Congress, the president
• tax or spend

Monetary 

• The FED (Federal Reserve Bank)
• OMO
• Discount Rate
• Federal Fund Rate
• Reserve Requirement 

Changes In The Supply of Loan-able Funds

• Remember that supply of borrowing of loan-able funds = savings (liw demand for bonds)
• more savings= more supply of loan-able funds (->)
• less savings = less supply of loan-able funds (->)
• EX - 
• -- Government budget surplus = more savings= more supply Loan-able funds .: Slf -> .: v
• -- decrease in consumers MPS = less saving = less supply of loan-able funds .: slf <- .:r ^

Final Thoughts on Loan-able Funds

• loanable funds market determines the real interst rate
• when government does fiscal policy it will affect the loan-able funds market
• changes in the real interst rate (r%) will affect Gross Private investment. 

Federal Fund Rate- the interest rate that commercial bank, change other commercial banks for over night

- discount rate- loans form FED 

- Sister banks- federal fund rate

Prime Rate- the interest rate that is given to a banks most credit worthy consumers

o-4%

Ms. Mac AP Macroeconomics, The Loan-able Funds Market

The Loan-able Funds Market

• The Market where savers and borrowers exchange funds (Qlf) at the real rate of interest (r%)
• the demand for loadable funds, or borrowing comes from households, firms, gov't and foreign sector. The demand for loan-able funds is in a fact the supply of bands.
• The supply of loan-able funds of saving comes from households, firms government and the foreign sector. The supply of loan-able funds is also the demand for bonds.

Changes in the Demand for Loan-able Funds

• Remember that demand for loan-able funds = borrowing (i.e supplying bonds)
• more borrowing = demand for loan-able funds (->)
• Less borrowing  = less demand for loan-able funds (<-) 
• examples
• - government deficit spending = more borrowing = more demand for loan-able finds .: Dlf -> .: r % ^
• - less investment demand =less borrowing = less demand for loan-able funds. 

Key Principles

- A single bank can create money (through loans) by the amount of excess reserves
- the banking system as a whole can create money by a multiple (deposit on a money multiplier) of the initial excess reserves

• Banks loan out all of the excess reserves
• loans are redeposited in checking accounts rather that taken in cash 

money that was created by the banking system. 

Factors That Weaken the Effectiveness Of the Multiplier

1. If the Banks fail to loan out all of their excess reserves, FED weak has to change money multiplier
2. If Bank customers take loans in cash rather new checking deposits creates cash or currency drain.  

Functions of the FED

1. It issues paper currency
2. sets reserve requirements and holds reserves of banks
3. lends money to banks and charges them interest
4. they are a check clearing service for banks
5. It acts as personal bank for the Government
6. supervises member banks
7. Controls the money supply in the economy 

Time Value of Money

Is a dollar today worth more than a dollar tomorrow?
- yes

but....
WHY????
-opportunity cost, and inflation
- this is the reason charging and paying interest

Let V= future VALUE of prices
P= PRESENT VALUE of prices
R= REAL INTEREST RATE (Nominal rate- inflation rate)
n= YEARS
K= Number of times interest is credited per year

Simple Interest Formula

V=( 1+ R)^n x P

Compound Interest Formula
V=(1+R/K)^nk x P

R% = 1 % - pie%

Monetary Equation of Exchange
MV=PQ
-M= Money supply (M1 or M2)
-V Money's Velocity (M1 or M2)
-PL= Price Level (PL on the AS/AD diagram)
-Q= Real GDP ( sometimes labeled Y on the AS/AD diagram)

Investment

Investment- We are redirecting resources, that you would consume now for the future.


Financial Asset- claims on property and income of the borrower

Financial Intermediaries- institution that channels funds from savers to borrowers.

Interest in relationship savers, saver is me, and institution is a bank, the bank invests.

3 Purposes for Financial Intermediaries
1. Share risk
-- Diversification- spreading out investment to reduce risk

2. Providing Information
--Stock-broker to advise you what to do to see

3. Liquidity
--Easily to convert to cash
--Returns- the money and inverses above and beyond the sum of money that was intentionally invested.

The higher the risk, the higher the investment bond.

Bonds
3 Components of a Bond

1. Coupon rate
2. Maturity
3. Par Value

Bonds are Loans or IOUs that represent debt that the Gov't or a cooperation must repay to an invester

-Bonds are generally low risk investments

1. Coupon Rate

- the interest rate that a bond issuer will pay to a bond holder

2. Maturity

- the time at which payment to a bond holder is due

3. Par Value

- the amount that an investor pays to purchase a bond and that will be re payed to an investor at maturity

Yield- Annual rate of return on a bond of the bond were held to maturity 

Bond you LOAN

Stocks you OWN

Money

Money- is any asset that can be easily used to purchase goods and services.

3 uses

•  As a medium of exchange

- Used to determine value

• Unit of Account

- You need something to compare cost to

• Store Value

- When you hide money (shoe box, under mattress)

- In a bank it earns interest, at home its the same value

1. Commodity Money

- value within its self

• Salt
• olive oil
• gold

     2.  Representative Money

- Represents something of value

• IOU - pay back worthless paper

   3.  Fiat Money

- Money because government says so 

• Paper currency
• coins

Currency is not the same as money

All money is not currency

6 Characteristics of Money

1. Durability (last long)
2. Portability ( take it everywhere)
3. Divisibility (Broken down) ex(1 dollar is 10 dimes)
4. Uniformity (looks the same, updates)
5. Limited supply
6. Acceptability 

Money Supply

- All the available money in the economy 

M1

• Consists of LIQUID ASSETS

- easily can convert to cash
-Currency (paper)

-coin

-check-able deposits  (checks)

-Travelers Checks

M2

• Consists of M1 Money + Savings Accounts + money market accounts. 

3 Purposes for financial Institutions

1. Store Money
2. Save Money
3. Loan Money- Credit card/Mortgage 

4 Ways to Save Money

1. Savings Account
2. Checking Account
3. Money Market Account
4. CD certificate of Deposit

3+4 Higher interest rate. 

Loans
Banks operate on fractional reserve bank system
which means - they keep a fraction of the funds, and they loan out the rest

Interest Rate
Principal- amount of money borrowed
Interest- price paid for the use of borrowed money
- simple interest- paid on the principal
- compound interest- paid on the principal + the accumulated Interest

Formulas

P- Principal
R- rate of interest
T- time

Simple Interest
I= P x R x T/ 100

Time
T= I x 100/ P x R

Principal
P = I x 100/ R x T

Interest Rate
R = I x 100/ P x T

Types of financial Institutions

1. Commercial banks
2. loans and saving institutions
3. mutual savings banks
4. credit unions
5. financial companies