Monetary Policy Videos

Video Responses

1st Video: AP Macroeconomics Unit 4-Part 1

In this video it starts off with the basic concepts, there are three different types of money: commodity money (more like trade and bartering, with things that have value), representative money (gold/silver coins) and fiat money (not backed by precious metal, accepted because the government says and tells its worth).

Functions of money:

1.      It’s a medium of exchange, like buying, one exchanges money for something you want to purchase.

2.     It’s a store of value, which refers to money stored and it is expected to stay the same value.

3.     It’s a unit of account, meaning looking at the price, which implies worth (example: expensive= higher quality, cheap= lower quality).

2nd Video: AP Macroeconomics Unit 4- Part 3

This video talks about money market graphs. Money market graphs are labeled as follow: on the y-axis we have interest rate and on the x-axis we have quantity (of money). Demand slopes downward, because when the price is high the quantity demanded is low, while when the price is low the quantity demanded is high, the law of demand. The supply of money is vertical because it doesn’t vary due to interest rate, it is fixed. Shifts in the graph move as follows, increase is a shift away/right of zero and a decrease is a shift towards or to the left of zero.

3rd Video: AP Macroeconomics Unit 4- Part 4

The Fed’s tools of monetary policy, starting off with expansionary and contractionary policies. The three things manipulated by the Fed are reserve requirement, discount rate and the federal funds rate. In controlling the reserve requirement, it is lowered in the expansionary policy and is raised in contractionary. Discount rate is lowered in expansionary and raised under contractionary. And last but not least, the buying and selling of bonds leads results in the upward or downward pressure of the federal funds rate.

4th Video: AP Macroeconomics Unit 4- Part 7

In this video it talks about loanable funds graph, which is based on how much money in the bank is available for people to use. The vertical axis is interest rate and horizontal is the quantity of loanable funds. The line of demand of loanable funds is downward sloping and the supply of loanable funds slopes upwards because the more money people save, the more money is made for loans. The supply of loanable funds decrease and increase the interest rate when the government demands more money.

5th Video: AP Macroeconomics Unit 4- Part 8

In part 8, it talks of the money creation process. Banks create money by making loans. The multiple deposit expansion is also used and explained as a part in the money making process. The money multiplier is equated to 1 over the reserved ratio which is the amount of deposits kept as reserves.

6th Video: AP Macroeconomics Unit 4- Part 9

In the last, but not least video, part 9, it puts a lot of things together. Starting off with when a government runs a deficit, they can then borrow money from Americans. If the demand for money is increased, then there is an increase in the interest rate, aggregate demand, price level and GDP. The lady also explains about a change in money supply can eventually equate to a change in price and how the Fisher-effect interest rate and price level are also the same.