Unit 4 Monetary

Money

Medium of exchange - 

• Used to barder our trade 
• Unit of account = what its worth
• Store of value - dosent fluctuate

Representative money -

• Paper money back by tangable product
• Commodity money 
• get the value from the material is made of.

Fiat Money - government sais so that its money

• Durability - 
• Portability carry money anywhere
• Divisibility - 
• Uniformity -all money is identical
• Scarcity - 
• Acceptability - everywhere you go

M1 currency                                                           M2 savings accounts

Paper, dollars, coins                                                Money market accounts

Traders checks                                                        Accounts held by banks outside the US

Checable deposists - Demand deposits                    Adding M1 money  

75%                                                                       25%

More liquid

Reserve requirnments 

                                        

Reserve Ratio - banks required reserves of money

Excess reserves = actual reserves - required reserves 

Control lending ability thus controlling how much banks make by makeing out loans.

Excess Reserves x Monetary Multiplier = Max checkable deposit creation.

Monetary multiplier = 1/required reserve ratio

Monetary Policy - is influenceing the economy that changes in reserves which influences the money supply and available credit.

• The reserve requirment % is set by the FED of the minumum reserve a bank must keep 
• Discount rate - rate of interest that the FED charges for overnight loans to banks. 
• Federal fund rate rate at which FDIC members charge each other for loans 
• OMO - Open Market aoperation - buy or sell securities.
• Fed buys bonds to expand money supply
• Prime rate - interest rate at which banks charge their most worthy borrowers = low rate 
• Discount Rate and federal fund rate decrease - decrease Expansionary = Monetary policy, Increase Contrationary = monetary policy.

OMO                        Buy Bonds                                    Sell Bonds

Discount rate                         v                                                  ^

Federal fund rate                   v                                                   ^

regulated reserve                   v                                                   ^

Recession = Increase money supply, 

Tight money policy goes up in value, 

Easy Money goes down in value  

AP Macroeconomics Unit 4 - Part 9

Money Market, Lonable funds, AD-AS

AP Macroeconomics Unit 4 - Part 8

Money Creation Process- by makeing loans

-Money Multiplier

-Multiple Deposit Expansion

Reserve Requirnment- RR 

Multiplier- 1/rr

Money Created = Mulitiplier x Loans 

Loanable Funds

Money available in the banking system for people to borrow

                   Price = Y

Quantity of Funds = X 

Supply Slopes Upward

Demand Slopes Downward

Supply of lonable funds- Dependant on savings

Government deficit- government is demanding money = shift demand to the right(increase Demand of lonable funds)

When deficit- you have an increase in demand for lonable funds the intrest rate goes up.

AP Macroeconomics Unit 4 - Part 5

Equation of exchange

MV=PQ

Money Velocity(GDP expenditures) = Average price of goods(GDP Income)

If velocity is stable- changes in m are going to impact the prices

DeltaM > DeltaP

AP Macroeconomics Unit 4 - Part 4

Fed Tools of Monetary Policy

Expancionary Policy-Easy- Vault cash or on reserve,

• To expand they lower the reserve. 
• To expannd buy, Bonds = Big Bucks.

Contractionary Policy-Tight-

• To contract raise the reserve requirement.
• To contract sell bonds.

Discount rate-Interest rate at which banks can borrow money from the FED.

Bonds and securities- Federal fund rate at which banks borrow money from each other.

AP Macroeconomics Unit 4 - Part 3

Money Market Graph

    Axis
          Y- intrest rate
          X-Quantity of money
    Slope Downward
          Price is low = demand is high
          Price is High= Demand is high
   Suply of money is vertical, fixed by the FED, tied to the interest rate
   When you increase demand you put upward pressure on interest rates
    
Quantity or interest rates, Fed tries to stabilize your interests rates, can increase the money supply.

AP Macroeconomics Unit 4 - Part 1

Money Market

Types of money
    Commodity money- ancient, goods with other purposes, not convinient.
     Representative money- represent a certain quantity of a precious medal.
     Fiat money- legal tender money that must be accepted for transations, backed by the government.
Functions of money
     Money - medium of exchange
     Store of value- Savings,
               If it looses its value causes an insentive to spend
     Wit of account- price implies something of worth
                worth (quality)

Unemployment: percentage of people who do not have jobs, but are in labor force Labor force: Employed + Unemployment Not in labor force:   Kids  Military personnel  Mentally insane  Imprisoned  Stay-at-home-moms/dads  Full-time students  Retired people  Discouraged workers Employed: 16 years or older and have a job Unemployed: 16 years or older and don't have a job actively looking for a job for at least 2 weeks Unemployment rate [(# of unemployed)/(Labor force (# of employed + unemployed))]x100 Types of unemployment Seasonal: Waiting for right time to conduct business Ex: Mall santa, lifeguard, school bus driver, concession stand Frictional: New opportunities, change in educational level, change in lifestyle, change in choices, in between jobs Structural: Lack of skill, change in technology, declining industry Cyclical: Downturns in business cycle bad for society as well as individuals Recession Full employment (FE) NRU (Natural rate of unemployment) = 4-5% Okun's law: For every 1% of unemployment above the NRU, causes a 2% decline in Real GDP

Inflation

Types of Inflation Cost-push inflation: higher production cost increase price, usually result of supply shock Increasing costs force producers increase prices. Demand-pull inflation: too many dollars chase too few goods. Demand pulls up ptices, therefore shortage created and overheated economy with excessive spending and same amount of goods. Political panics: depression, recession.

Rate of Inflation

CPI2-CPI1      x100
    CPI1        



Help

1. Debtors
2. Business were the price of the product increases faster than the price of the resources

Hurt

1. Lenders
2. People with fixed income.
3. Savers
4. Fixed Wage

Consumer Price Index

CPI- Consumer Prize Index

(Cost of the market basketin a given year)    x100
(Cost of the Market basket in a base year)

Real VS Nominal GDP

Real   Value of output produced IN CONSTANT OR BASE YEAR PRICES   Can increase from year to year; only if output increases   Used to calculate economic growth   *Real= P(current)•Q(current) Nominal   Value of output produced IN CURRENT PRICES   Can increase from year to year; if either output or prices increase   Used to calculate inflation   *Nominal= P(base)•Q(current) GDP Deflator    Base year GDP Deflator is 100    Years after base year, GDP Deflator greater than 100    Years before base year, less than 100    * (Nominal GDP)                                •100       (Real GDP)

GDP

GDP: Gross domestic product. 

   Total value of all final goods and services produced within country's borders within a year.

 All production on income earned in the U.S.

GNP: Gross national product. Total value of all final goods and services produced by Americans in a given year.
   American in another country counted

Included:
 Final goods and services

 Income earned 

 Wages

 Rents

 Interests

 Payments

 Interest payments or corporate bonds

 Current production of final goods

 Unsold output (business inventories)

Excluded
--Transfer payments (public and private)

 Intermediate goods: avoid multiple counting 

(social security, unemployment compensation, scholarships cannot be transferred)

 No sell of stocks and bonds; Used or second-hand goods

 Non-market transactions (babysitting, illegal drugs, prostitution

 DIY repairs, growing own vegetables, etc)

Expenditure Approach
-GDP = C + Ig + G + Xn
-- Personal consumption + Gross-private Domestic Investment + Gov't spending + Net exports (exports - imports)

Income Approach (FOP)
-GDP = W + R + I + P
-- Wages ( salaries / compensation of employees ) + Rents ( rental income ) + Interest ( interest income ) + Proprietor's Income

National Income = 

                     CE                     +     PI                     +         RI           +           II            +         CP
--Compensation of Employment + Proprietary Income + Rental Income + Interest Income + Corporate Profits

National Income = 

  GDP -           IBT                    -     DepRate  -            Net FFP

--GDP - Indirect business taxes - depreciation - Net foreign factor payment

Disposable Income = National Income - Household taxes + Gov't transfer payment

DPI                        =          NI            -            HT           +             GTP

Budget =

 Transfer Payments +                     GPGS                         -             GTFC

--Transfer payments + Gov't purchase of goods and services - Gov't tax and fee collection
* + Deficit, - Surplus

Trade = exports - imports
* + Surplus, - Deficit

-NDP  = GDP - DepRate

--Net domestic product - NNP = GNP - DepRate

--Net national product - GNP = GDP - NetFFP

Circlular flow

Circular flow- Represents flow of money, goods, and services.

   Factor market (resource): 4 Factors of production: where they're bought and sold.

   Product market (Goods): where goods and services are bought and sold

   Firm: A business or organization producing goods and services for sale

   Household: Person or group of people sharing income

Shortage and Surplus

Shortage and Surplus

Price floor is a minimum price for a good or service
*Ex: minimum wage

Price sealing is the max for good or service
*Ex rent control

Real Output- increasing employment id declining

Peak: real output at its highest point

Recession-  real output decreasing unemployment rising = Trough

Elasticity of Demand

Elasticity of Demand
 Elastic Demand-
 A product is elastic when demand changes greatly given a small change in prize.

•  Many substitutes
• Luxury good

Ex: cars, coke, steak

>1


Inelastic demand-
A product is said to be inelastic if the demand for it will not change or change very little regarding to prize

• few substitutes
• necessary

Ex:  Heart medicine, gas, Milk
<1

Production possibilities

Production possibilities
*only two goods can be produced

• PPG Graph- shows alternate ways to use resources
• PPC Curve
• PPF Frontier- illustrates opportunity cost 

Point A- attainable to get to the curve, War, Famine, Unemployment

                                                       Point B,D,C attainable & efficient 

                                                       Point X unattainable- things to change it: Technology and Economic growth

Productive efficiency- any point of the curve

Law of Increasing Opportunity Cost - when resources are shifted from making one good or service to another the cost of proceeding the second item increases
 *this occurs because not all resources are equally suited from the production of all goods.
To move up from unattainable:

Economics Intro

Economics

Macro- The study of major components of an economy

• Inflation
• Unemployment
• Supply and Demand 
• GDD 

      Micro- study of household and firms make decisions and how they interest in market 

       Positive statement- fact based

                *Ex minimum wage causes unemployment

     Normative statement- describes the world how it should be

      *descriptive

      * Ex  The retirement age should be raised to 70 to combat the effects of our ageing population.

      Wants- more broad 

      Needs- basic requirements 

      Scarcity- basic fundamental economic problem, unlimited wants with the limited resources

                          Qd > Qs

      Goods-  can be bought, sold and produced

      Consumer goods- intended for final use by the consumer 

      Capital goods - items used for creation of other goods such as factory machinery and trucks

      Services- work performed for someone else

Factors of production

• Land(natural resources)

• Capital 

1. Human- Knowledge and skill 
2. Physical- Human made objects used to create other go

• Labor 

• Entrepreneurship