Unit 4 Video Responses

1^st Video-    Commodity money are things that have value and can be used as pay in replacement of coin. A cow is an example because it has values and can be used for other purposes. Representative money is the currency you are using to represent the quantity of a precious metal such as gold or silver. Fiat money is that which the government says that something specific has value based on their promise. The functions of money are unit of account, store of value and medium of exchange.

2^nd Video- Demand for money is downwards sloping because when the price is high, the quantity demanded is low. The supply of money is vertical because it does not vary based on the interest rate. The supply of money is fixed by the FED. If the FED does not want high interest rates during a recession, they can increase the money supply to stabilize the interest rates.

3^rd Video- The Fed's tools of monetary policy are discount rates, required reserves, and buy/sell government bonds and securities. In certain cases the Fed will increase or decrease the tools. If the Fed wants to expand the money supply they would decrease RR, buy bonds, and decrease discount rates. While, in an effort to contract the money supply the FED would increase the RR, increase, discount rates, and sell bonds. Reducing "interest rates" basically means buying or selling bonds to put downward or upward pressure on the Federal Fund Rate.

4^th Video- Loanable funds is money available in the banking system for people to borrow. Interest rate is going to be on the x axis and quantity on the y axis Q (F). Demand for loanable funds is downward sloping because when the interest rate is lower people demand more money, and when the interest rate is higher people have a disinvite to borrow. Supply of loanable funds comes from money that people have in banks that means it is dependent on savings.

5^th Video- Banks create money by making loans. The formula for the money multiplier is 1 / reserve requirement. The money multiplier is then multiplied by the amount of money loaned to get the potential total amount of money created in the banking system. This can only be done by assuming that the banks have no excess reserves. If there are excess reserves, then the potential total amount of money is lower.

6^th  Video-  The money market, loanable funds market, and AD/AS market have affects on each other, The money market is where the government gets the money, the demand for loans increase for another source of money(government spending), and the AD increases because government spending is a determinant for the AS/AD market. The equation of exchange is MV=PQ can be used to explain the relationship, as price levels increase the interest rates increase. This can be explained by the "fisher effect." It ultimately means that there is a 1:1 ratio.