Blog Assignment 3/29

Part 1 There are three types of money: commodity, representative, and fiat. Commodity money are backed by commodities that function as money. Representative money isn’t used anymore because the value of the money fluctuates. Fiat money is backed by the word of the government that it is money. It doesn’t represent anything. There are three functions of money: as a medium (substance through which things pass) of exchange – money is used for exchanges when buying things; as a store of value - when you put it away, it will hopefully still have its value; save it; and as a unit of account- price => worth (quality) 
Part 3 Why Demand for money slopes down: when price is high quantity for money is low, quantity is fixed, because it’s set by Fed. If you increase demand for money, you put an upward pressure for interest rates. To stabilize interest rate, increase supply of money.
Part 4 An expansionary (easy money) policy is meant to increase money supply. Reserve requirements-percentage of banks’ total deposits that they must hold onto. They could lower the rr. Contractionary policy is the opposite of expansionary. It is meant to decrease the money supply. You would raise the rr in a tight money policy.
Part 7 Loanable funds are money that is available in the banking system for people to borrow. Supply of loanable funds comes from the amount of money that people have in banks- depended on savings. If people have the incentive to save more, increase supply of LF. When the government is demanding a great deal of money, it’s decreasing the national supply of funds, jacking up the interest rate.
Part 8

Banks create money by making loans. When banks loan, they use the monetary multiplier. The monetary multiplier is =1/rr. Maximum potential money creation in a banking system can be figured out by multiplying the amount of excess reserves in a bank by the monetary multiplier. Maximum potential money creation assumes that the bank has excess reserves to lend out.

Part 9 When the government running a deficit: they borrow money from Americans. Demand for money if increased=> increase interest rate. Increase aggregate demand, increase pl, increase gdp. Change in supply of money= change of price. Fisher effect-interest rate & pl is equivalent.