MONETARY POLICY

Video number 1

There are three types of money. The first one is commodity is the purpose that function as money. A representative is represent metals. Fiant is the money that must accept by transaction. There are three types of function of money. The first one is medium of exchange it means you exchange something. Store of value is when you put money away and you expected to still have value when you use it. The last one is the unit account with this we can said price indicate worth.

Video number 2
Money Market
Demand is down because price is high, so demand is low but the  price is high, basically they have an inverse relationship.SM is vertical does not vary on interest rate. Interest rate on the  y-axis. on the money graph x-axis is QM increase money supply is the right decrease is to the left.

Video number 3

Expansionary and contradictary is have a inverse relationship. Discount rate is the bank can borrow from the FED. In expand the money supply the Fed buy bonds. in contradictary the Feb sell bonds.

Video number 4

Interest rate on the y-axis. quantity of loanable fund on the axis. Dlf downward and Slf is upward. The slf is the amount of money people have in bank. The more people put money in the bank, the more loans bank will be available.

Video 5
Money creation create money by making loans. RR is the amount the bank need to keep. Multiplier is 1/RR. Multiplier deposit to add all the potential loans. Money creation have multiplier and multiple deposit expansion.

Video 6

Money market lonable fund and AD-AB graph. It's better to put them side by side. Money supply and loanable fund have a interest rate as their y-axis. Both DM and Dlf are going down

Loanable funds market:

 

• The market where savers and borrowers exchange funds at the real rate of interest.
• Demand for loanable funds or borrowing comes from households,firms,gov and the foreign sector. The demand for loan able funds is in fact the supply of bonds. 
• The supply of loan able funds or savings comes from households,firms,gov and the foreign sector. The supple of loan able funds is also the demand for bonds.

Changes in the demand for Loanable funds 

• Remember that demand for Loanable funds=borrowing 
•  More borrowing=more demand for Loanable funds (->)
• Less borrowing=less demand for Loanable funds (<-)

Changes in the supply of Loanable funds 

• Remember that supply of Loanable funds=saving 
• More saving=more supply of Loanable funds(->)
• Less savings=less supply of Loanable funds (<-)

Final thoughts on Loanable funds 

• Changes in saving and borrowing create change in loanable funds and therefore the r% changes
• change in the real interest rate will affect GDP

 

key principle

• A single bank can create money (through loans) by the amount of excess reserves
• Banking system as a while can create money by a multiple (deposition) money multiplier of the initial excess reserves.

Factors that weaken the effectiveness of deposit multiplier:

1. If banks fail to loan out all of its excess reserves.
2. If bank customers take their loans in cash rather than in their checking account deposits it creates a cash or currency drain.

MONEY MARKET

Inverse relationship between money, demand, and interest rates.

DM ; MD up    :  ir down

money demand shifter:

1. Change in price level
2. Change in income

Function of the FED

-It issues paper currency 

-sets reserve requirements and holds reserves of banks

-lends money to banks and charges them interest

-they are a check clearing service for banks

-It acts as personal bank for the Government

-supervises member banks

-Controls the money supply in the economy

How banks work

Asset

• Reserves
• Required reserves(rr) - % required by FED to keep on hand to meed demand.
• Excess reserves(er) - % reserves over and above the amount needed to satisfy minimum Reserve ratio by FED
• Loans to firms, consumers, & other banks (earn interest)
• Loans to government (if the bank fail could sell the building/property) 

liabilities + Equity

• Demand deposits ($ put into bank)
• Timed deposits(CD)
• Loans from: FED reserves & other banks
• Shareholders equity

Creating a bank:

• Transaction
• Depositing reserves in a FED. reserve banks
• Required reserves
• Reserve ratio commercial banks required reserve/commercial banks checkable deposit liability 
• Excess Reserve

 

Time Value of Money

Time value of money 

Time Value of Money

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

• Inflation
• opportunity cost and inflation
• this is the reason for  changing and paying interest

Let V= future VALUE of prices
P= PRESENT VALUE of prices
R= REAL INTEREST RATE (Nominal rate- inflation rate) express as a decimal
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: directing resources,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.

  Purposes for Financial Intermediaries

• Share risk Diversification 
• Reduce risk
• Provides
• Liquidity returns account investment received above and beyond in a sum of money that investment
  

Bond

• Coupon rate
• Maturity
• Par Value

• Loans or IOUs that represent debt that the Government  or a cooperation must repay to an investor
• Low risk investments
• Coupon Rate
• Interest rate that a bond issuer will pay to a bond holder
•  It's time at which payment to a bond holder is due
• Hard value it's a account that invested pay to purchase a bond that will be repay at maturity
• 
  

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


Bond you LOAN
Stocks you OWN