Unit 4 Monetary Policy

Uses of Money 

1. Medium Exchange: using to barter our trade
2. Unit of Account: gives money economic worth
3. Store of Value: dollar does not fluctuate

Types of Money

1. Representative Money: paper money that is backed by a tangible product
2. Commodity Money: gold a silver coins, gets value from material that is is made of 
3. Flat Money: money because government said so 

Characteristics of money 

1. Durability: 
2. Portability: carry money everywhere
3. Divisibility: money can be broken down
4. Uniformity: money is identical
5. Scarcity:
6. Acceptability: 

M1 Money (more liquid) 

• Consist of currency circulation (paper and coins)
• Travelers checks
• Checkable deposits
• Demand deposits

M2 Money 

• Savings accounts
• Money market accounts
• Accounts held by banks outside of the United States
• Adding M1 money

• Assets=(Liabilities)+(Net Worth) 
• Reserve Ration=(Commercial Bank's Required Reserves)/(Commercial Bank's Checkable Deposit Liabilities)

Three Important Issues

1. Excess Reserves=(Actual Reserves)-(Required Reserves)
2. Control of lending liability
3. Asset or liability to which bank?

• Banks create money by lending excess reserves and destroy it by loan payment , purchasing bonds from the public also creates money
• Money Multiplier=(1)/(Required Reserve Ratio)
• Maximum Checkable Deposit Creation=(Excess Reserves)(Monetary Multiplier)

Reserve Equipment 

• The Fed requires banks to always have some money readily available to meet consumers' demand for cash
• The amount, set by the Fed, is the required reserve ratio
• The required reserve ratio is the percentage of demand deposits (checking account balance) that must not be loaned out
• Typically the required reserve ration equals 10%

The Money Multiplier

• Similar to the spending multiplier, the money multiplier shows us the impact of a change in demand deposits on loans and eventually the money supply
• To calculate the multiplier, divide 1 by the required reverse ratio
• Money Multiplier=(1)/(Reserve Ratio)

The Three Types of Multiplier of Multiple Deposit Expansion

Type 1

• Calculate the initial change in excess reserves
• The smount of a single bank can loan from the initial deposit

Type 2

• Calculate the change in loans in the banking system

Type 3

• Calculate the change in the money supply
• Sometimes type 2 and 3 will have the same result (no Fed involvement)

Monetary Policy (Federal Reserve Bank)

• Influencing the economy through changes in reserves which influences the money supply and available credit

4 Options of Monetary Policy

1. Reserve Requirement: percent that is set by the FED of the minimum reserve a bank must keep
2. Discount Rate: the rate of interest that the FED charges for overnight loans to banks
3. Federal Fund Rate: rate that FDIC members charge each other for loans 
4. OMO (Open Market Operation): either buy or sell securities (bonds)

• If the FED buys bonds they expand (expansionary) money supply
• If they sell bonds they decrease money supply (contractionary)

Prime Rate

• Interest rate that banks charge their most credit worthy borrowers

	Expansionary	Contractionary
OMO	Buy Bonds	Sell Bonds
Discount Rate	↓	↑
Federal Fund Rate	↓	↑
Required Reserve Ratio	↓	↑

• If initial deposit is not new money, the total change in money supply is only the new money created by the banking system
• Single Bank: amount of money single banks can create (loan out)=ER

AR-RR+ER

• Banking Sytem: can create money by a multiple of its initial ER

Deposit Multiplier= (1)/(RR)

System New Money= (Deposit Multiplier)(Initial ER)

Video Notes (Unit 4)

Video Part 1

There are three types of money; commodity, representative, and FIAT. Commodity represents good that can also be represented as money. Representative money which is money backed up by gold, and FIAT being the opposite of that. There are also three functions of money; medium of exchange, store of value, and unit of account. 
This was the information that I was able to learn when watching the video. It was extremely helpful when getting the basic understanding of the types of money and what each one of them actually means. The video was also not complicated to understand too.

Part 3

First, I found that labeling your axis' are most important thing for the money market graph

Along your vertical axis you put quantity money on your horizontal axis. The price that you pay to get money is the interest rate, meaning that the interest rate would be on your vertical axis.The demand of money always slopes down because when the price is high, quantity demanded is low. When the interest rate is low people want to borrow money more. Transaction demand and asset demand are the component of the demand of money. Supply of money is vertical because it does not vary on the interest rate. When increasing demand (shifting left), pressure is put on interest rate causing it to rise; the quantity stays the same because supply of money is vertical. In order to stabilize interest rates, the supply of money must shift to the right.

This video was extremely simple and something that I have already sort of seen before. It went over basic understandings of which there is a slope with the demand of money and the vertical line of supply of money. I found the video helpful.

Part 4

Exansionary- Easy Money

Contractinary- Hard Money

There are three tools of monetary policy that the Fed has; expansionary and contractionary. If the Fed wants to expand money supply they decrease the required reserves and if they want to contract they would increase the required reserves. If they decrease the required reserves there will be more excess reserves to use on loans. If the Fed wants banks to borrow more money they would lower the discount rate, and if they want to discourage banks they raise the discount rate. To increase money supply the Fed would buy bonds, and to contract the money supply they would sell bonds. The Federal Open Market Committee makes the decisions. The Federal Funds Rate is the rate at which banks borrow money from each; it has nothing to do with the Fed.
This video included went expansionary and contractionary dealing with monetary policy. It was a good review of previously learned ideas.

Part 7

This video was different from the others. When it comes to the loanable funds market, it is difficult to understand as it is being written on the board. I had a previous understanding of this topic, so I felt i could bring more to the table than the teacher did. I found this video as the least helpful. 

Part 8

This video was probably the most basic. You find your multiplier. It had a list of steps for that.

It taught how to find the reserves, and what they are in the total equation. This is a good review of what we learned in class.

Part 9

This video dealt with demand graphs. It was not as difficult to understand the basic principle of the graph. I found it important to label the axis correctly, and to understand which curve is shifting, why, and what other factors change along with it. I found this very helpful.

Unit III Psychology

Unit III Social Psychology

2/19/15

Social Psychology

-The study of how we think about, influence and relate to one another

Social Thinking

·  Social Thinking: how we think of one another

·  Attribution Theory: the idea that we give a casual explanation for someone's behavior, we credit that behavior either to the situation or the person's disposition

·   Fundamental Attribution Error: the tendency to underestimate the impact of a situation and overestimate the impact of a situation and overestimate the impact of personal disposition

·Attitudes: a belief of feeling that predisposes one to respond in a particular way to something 

· Foot-in-the-door Phenomenon: the tendency for people who have first agreed to a small request to comply later with a larger request

· Door-in-face Phenomenon: the tendency for people who say no to a huge request, to comply with a smaller one

·Cognitive Dissonance Theory: we do not like when we have either conflicting attitudes or when will our attitudes do not match our actions

-When they clash, we will change our attitude to create balance

02/19/15

Social Influence

·                     Conformity: adjusting one's behavior or thinking to coincide with a group standard

·                     Conditions that strengthen conformity:

1.                   One is made to feel incompetent

2.                  The group is at least three people

3.                  The group is unanimous

4.                  One admires the groups' status

5.                  One had made no prior commitment

6.                  The person is observed

·                     Reasons for Conforming:

-Normative Social Influence: influence resulting from a person's desire to gain approval or avoid disappointment 

-Informational Social Influence: influence resulting from one's willingness to accept others' opinions about reality

Group Influence on Behavior

Social Facilitation:

-Improved performance of tasks in the presence of others

-Occurs with simple or well learned tasks

-Not with tasks that are difficult or no yet mastered

·    Social Loafing: the tendency for people in a group to exert less effort when pooling efforts toward a common goal than if they were individually accountable

· Deindividuation: the loss of self-awareness and self-restraint occurring in group situations that foster arousal and anonymity 

· Group Polarization: the concept that a group's attitude is one of extremes and rarely moderate

·    Groupthink: the mode of thinking that occurs when the desire for harmony in a decision-making group overrides common sense 

·   Self-Fulfilling Prophecies: occurs when one person's belief about others leads one to act in ways that induce the others to appear to confirm the beliefs

Social Relations

·   Prejudice: an unjustifiable attitude towards a group of people, usually stereotyped beliefs (a generalized belief about a group of people)

· Social Inequalities:

-Ingroup: "us"- people with whom one shares a common identity

-Outgroup: "them" - those perceived as different than one's ingroup

-Ingroup bias: the tendency to favor one's own group

02/25/15

·   Scapegoat Theory: the theory that prejudice provides an outlet for anger by providing someone to blame

·    Aggression: any physical or verbal behavior intended to hurt or destroy

·   The Psychology of Aggression: 

Frustration-Aggressive Principle

·                     The blocking of an attempt to achieve some goal

·                     Creates anger which generates aggression 

·                     Goals can be: sports/work, relationships

·    Conflict: a perceived incompatibility of actions, goals, or ideas

-Social trap or prisoner's dilemma

·                     The Just World Phenomenon: the belief that those who suffer deserve their fate

·                     Reciprocity Norm: expectation that people will help those that will help them

·                     Social Responsibility: the expectation that people help those that depend on them

·                     5 Factors of Attraction:

1. Proximity: geographic nearness

·                     Mere Exposure Effect: repeated exposure to something breeds liking, mirror image concept

2. Reciprocal Liking: you are more likely to like someone who likes you

3. Similarity: opposites do not attract, similarity breeds concept

4. Physical Attractiveness

5. Love

·                     Passionate Love: an aroused state of intense positive absorption of another

·                     Compassionate Love: the deep affectionate attachment we feel for those with whom our lives are intertwined

·                     Equity: both are fair

·                     Self-Disclosure: no secrets

·  Altruism: unselfish regard for the welfare of others

· Bystander Effect: only help others when others are around

· Social Exchange Theory: the idea that our social behavior is an exchange process, which we maximize benefits and minimize costs

· Peacemaking: give people super ordinate (shared) goals that can only be achieved through cooperation, win win situation through mediation, GRIT (Graduated and Reciprocated Initiatives in Tension Reduction)

Motivation and Emotion

·   Motivation: a need or desire that energizes and directs behavior

· \Instinct Theory: we are motivated by our inborn automated behavior, but instincts only explain why we do a small fraction of our behaviors

· Drive-Reduction Theory: the idea that a physiological need creates an aroused tension state (a drive) that motivates an organism to satisfy the need

-The need is usually to maintain homeostasis

-We are not only pushed by our needs but pulled by our incentives: a positive or negative environmental stimulus that motivates behavior

Maslow's Hierarchy of Needs

·                     Maslow said we are motivated by needs, and all needs are not created equal, we are driven to satisfy the lower level needs first.

Hunger

·                     Hunger: both physiological ad psychological 

·                     Biological Basis of Hunger

-Hunger does not come from our stomach

-Comes from the brain: the hypothalamus

·                     Hypothalamus

1. Lateral Hypothalamus 

-When stimulated it makes you hungry

-When lesioned (destroyed) you will never be hungry again

2. Ventromedial Hypothalamus

-When stimulated you feel full

-When lesioned you will never feel full again

·                     Two Theories

1.                   Leptin: is a protein produced by bloated fat cells

2.                  Set Point: 

·                     Hypothalamus acts like a thermostat

·                     We are meant to be in a certain weight rage

·                     When we fall below weight our body will increase hunger and decrease energy expenditure (Basic Metabolic Rate)

·    Body Chemistry 

-Glucose: the hormone insulin converts glucose to fat, when glucose levels drop-hunger increases

· Hypothalamus and Hormones 

-The hypothalamus monitors a number of hormones that are related to hunger

·The Psychology of Hunger

-External: people whose eating is triggered more by the presence of food than internal factors

· Eating Disorder

-Bulimia Nervosa: characterized by binging (eating large amounts of food) and purging (getting rid of food)

-Anorexia Nervosa: starve themselves to below 85% of their normal body weight, see themselves as fat, majority are woman