AP Macroeconomics Unit 4 Video Series Notes

Part 1:
There are three types of money. The types of money she brings up are commodity money, which has been around and has been used the longest. Then there is representative money which means whatever you are using as currency is representing a specific quantity of metal. And lastly, the type of money we use today, Fiat money. This money is not back by precious metal and must be accepted for transactions. The functions of money consist of is that money is a medium of exchange, money as a store of value, and lastly, money being a unit of account.

Part 3:
Money Market graphs are graphs that we have to become very familiar with and have to be able to master them when it comes to drawing them properly. The Y Axis will always be labeled as the interest rate, and the x axis will be labeled as the quantity of money. The demand for money will slope in a downward direction because when the price is high, demand is low and vise versa. What is different from the supply and demand graphs is that the supply of money is vertical in this case. Demand for money is set by the Fed.

Part 4:
Expansionary policies are also called easy money, and contractionary policies are called tight money. Required reserves is a portion of money that is of the total deposits that they have to hold on to. Money that has been RR will become the excess reserves that the bank can begin to loan out. The discount rate is the rate that banks can borrow money from the fed. This is the interest rate that the fed charges.

Part 7:
Another graph we have to learn to  master is the loanable funds graph. We have to tie it to the money market and show the results in AD/AS graphs. Loanable funds is money that is available for the public to borrow. Demand for loanable funds is downward sloping, while the supply slopes in an upward direction. Supply of loanable funds is dependent on people's savings.

Part 8:
Another concept we have to become familiar with is the money creation process. Banks create money by creating loans, which is a key point in the process of creation. One of the Feds tools is being able to adjust and control the Reserve Requirement. The formula for the money multiplier is 1/RR.

Part 9:
We have to learn how to show the connection of what is actually happening in the economy. Keep everything labeled to show your work. To be consistent, show the same interest rate and the demand will slope downward. Increase in government spending is going to increase aggregate demand. Do not try to change 5 or 6 factors at once because it will get very complicated.