Wednesday, April 1, 2015
Sunday, March 29, 2015
Videos
Video 1:
The video introduces the types of money. We have 3 types of moneys, commodity, representative and fiat money. Commodity money is the first type of money being used, it can be think of as a fair trade, depend on how both parties set the value, say a cow for a bag of rice, etc. Representative money is the type of currency where we use a metal as a value to trade other goods, for example: gold, silver, bronze. This type of money is not used anymore because of the flexibility in prices of metal, and as the price of metal changes, it will affect the currency of that country. Fiat money is what most countries use today, it is money and has value because the government say so, it is stable since the govt has control over it.
Video 2:
The video explains the supply and demand of money on the Money Market graph. The concept is the same as supply and demand concept, the demand for money will always downward sloping and is affected by the interest rate. Supply for money in the other hand is vertical because it doesn't vary based on the interest rates because it's set and fixed by the Fed. During a recession, the Fed increase the supply of money to remain the interest rate and increase the demand for money.
Video 3:
The video explains the tools of monetary policies include tight and easy money. Expansionary has easy money, the Reserve Requirement and Discount Rate decreases, while actually 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 4:
The video explains the loanable fund market on graph, it is the money available in banking system for people to borrow. The demand for loanable fund is downward sloping as all the supply demand concepts. The supply for loanable funds depend on the savings, the more money saved, the more money bank have to make loans. It's a leakage in income but it is positive for supply of loanable funds when people tend to save more.
Video 5:
The video discussed about the money creating process. Banks make money by loaning money out. When a person deposit a check in to a bank, the bank will keep a certain amount as the reserve the will loan the excess reserves out. The total amount of loan created is through a multiplying expansion. Reserve Ratio is the percentage of banks total requirements. The process of the multiple deposits is to add up all the potential loans.
Video 6:
The video shows the connection between the loanable fund market, money market and the AD-AS graph together. In the money market graph, when the demand for money increase (shift to right), the interest rate increase. When that happens, in the loanable fund, the available money is reduced. That makes the AD increases in AD-AS increase, hence increase the nation's GDP. The fisher effect say the increase in interest rate will increase the inflation. it is a direct relationship.
The video introduces the types of money. We have 3 types of moneys, commodity, representative and fiat money. Commodity money is the first type of money being used, it can be think of as a fair trade, depend on how both parties set the value, say a cow for a bag of rice, etc. Representative money is the type of currency where we use a metal as a value to trade other goods, for example: gold, silver, bronze. This type of money is not used anymore because of the flexibility in prices of metal, and as the price of metal changes, it will affect the currency of that country. Fiat money is what most countries use today, it is money and has value because the government say so, it is stable since the govt has control over it.
Video 2:
The video explains the supply and demand of money on the Money Market graph. The concept is the same as supply and demand concept, the demand for money will always downward sloping and is affected by the interest rate. Supply for money in the other hand is vertical because it doesn't vary based on the interest rates because it's set and fixed by the Fed. During a recession, the Fed increase the supply of money to remain the interest rate and increase the demand for money.
Video 3:
The video explains the tools of monetary policies include tight and easy money. Expansionary has easy money, the Reserve Requirement and Discount Rate decreases, while actually 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 4:
The video explains the loanable fund market on graph, it is the money available in banking system for people to borrow. The demand for loanable fund is downward sloping as all the supply demand concepts. The supply for loanable funds depend on the savings, the more money saved, the more money bank have to make loans. It's a leakage in income but it is positive for supply of loanable funds when people tend to save more.
Video 5:
The video discussed about the money creating process. Banks make money by loaning money out. When a person deposit a check in to a bank, the bank will keep a certain amount as the reserve the will loan the excess reserves out. The total amount of loan created is through a multiplying expansion. Reserve Ratio is the percentage of banks total requirements. The process of the multiple deposits is to add up all the potential loans.
Video 6:
The video shows the connection between the loanable fund market, money market and the AD-AS graph together. In the money market graph, when the demand for money increase (shift to right), the interest rate increase. When that happens, in the loanable fund, the available money is reduced. That makes the AD increases in AD-AS increase, hence increase the nation's GDP. The fisher effect say the increase in interest rate will increase the inflation. it is a direct relationship.
Unit 4 - Changes in the Supply of Loanble Funds
The supply of borrowing of loan-able funds = savings (low 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 ^
->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 interest rate
-When government does fiscal policy it will affect the loan-able funds market
-Changes in the real interest 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%
Unit 4 - Loanable Fund Market
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 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
-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 (<-)
->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.
- Government deficit spending = more borrowing = more demand for loan-able finds .: Dlf -> .: r % ^
- Less investment demand =less borrowing = less demand for loan-able funds.
Unit 4 - 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
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
- If the Banks fail to loan out all of their excess reserves, FED weak has to change money multiplier
- If Bank customers take loans in cash rather new checking deposits creates cash or currency drain.
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