The Money Market (1 of 2)- Macro Topic 4.5

Mr. Clifford introduces the money market graph, a key concept for the AP macro exam. He explains the definition of money, focusing on M1, which includes cash, traveler's checks, and checkable deposits. The video distinguishes money from wealth, emphasizing liquidity. The demand for money is driven by transaction and asset demands, influenced by interest rates. The supply of money is controlled by the central bank and is unaffected by interest rates. The video concludes with an explanation of monetary policy, detailing how the Federal Reserve uses it to influence the economy through interest rates.

Which of the following is included in the narrowest definition of money, known as M1?

• Bonds

• Stocks

• Traveler's checks

• Real estate

Why are assets like cars and houses not considered money?

• They are not owned by banks

• They have low liquidity

• They are not used for transactions

• They are not valuable

What happens to the demand for money when the interest rate is high?

• It increases

• It remains unchanged

• It decreases

• It becomes unpredictable

Which factor can cause a shift in the demand curve for money?

• A change in the central bank's policy

• A change in the price level

• A change in the currency design

• A change in the number of banks

What is the purpose of contractionary monetary policy?

• To increase inflation

• To decrease inflation

• To increase employment

• To decrease interest rates