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Money, AD, AS - Coggle Diagram
Money, AD, AS
Money$$
Asset for G&S
Commodity money
goods used as money
Value Independent of use as $
4 functions
Medium of xchange
Unit of account (measure)
Store of value (liquid)
Standard of deferred payment
What can be money?
Acceptable
standardized
durable
valuable
divisible
Paper Money
Central bank
Federal Reserve
Fiat Money
auth by central bank
Doesn't need to be exchanged
Only acceptable with confidence the $ will not lose value
Belief
Fractional reserve banking system
Bank run
bank panic
Federal reserve helps prevent
Measure of $
M1
circulation
checking
travelers
M2
M1+ savings, money mkt, mkt fund share
Simple deposit multiplier
1/RR (reserve ratio)
FOMC
Conduct monetary policy
Open market operations
Buying & selling of treasury bond
Discount Policy
Reserve Requirements
Quantity Theory of Money
How high rate of inflation occurs
Supply of money and prices relationship
M x V = P x Y
Money
velocity = price level
output (nominal GDP)
V=P*Y/M or real GDP/Money supply
Inflation rate = Growth rate of Money - Growth rate of real output
Money supply faster = Inflation :!!:
Hyperinflation
Excess of 100% Inflation
Nominal * deflator/ Money supply
Agg. Demand
Horizontal: real GDP
Y axis: Price Level
Relationship between price level and qty real GDP demanded by households firms and govt
C+I+G+NX
WHY DOWNWARD SLOPING
Higher price lvl = lower consumption
High price lvl = lower Investment
Higher price lvl = lower NX
Shift along AD = change In price level not by CIGNX
Change In CIGNX shifts AD curve
factors affect AD
Monetary Policy (higher Interest)
Fiscal policy (increase or decrease tax)
Level of optimism
govt policy
Foreign Income
Macroeconomic Equilibrium
LR: AD, SRAS, and LRAS all Intersect
COVID affect D & S
LRAS Left
AD Return will be higher Price
cant be @ full emp
Firms not working, AS left
Higher cost to firms
Supply chain etc.
Lockdowns
People lose job AD Left
Permanent damage
Agg. Supply
SR Price level & QTY real GDP Supplied by firms
SR
Upward
sloping
final price rises
Input price rises behind
Wages and prices sticky
Wages sticky downward
Menu costs
make prices sticky
Sticky = do not respond to changes In D or S
Shift along SRAS
P lvl change NOT caused by factors that would affect SRS
Shift SRAS
Believe pice level change, adjust wages, shift left
Availability factors of production
Improvement In tech
"Supply Shock"
Causes "Stagflation"
Inflation + recession
LR
straight line at level of full employment GDP
Increase annually with level of tech and capital stock
SHORT RUN MODEL