Macro 4.6 Monetary Policy - Ample Reserves and Scarce Reserves

Рет қаралды 38,862

Жыл бұрын

This video covers topic 4.6 of the AP Macroeconomics Course Exam Description (CED). This video is all about monetary policy. It coveres both the scarce (limited) reserves and ample reserves systesm (regimes). Monetary Policy impact on the money markey, reserves market, and AS/AD model are all included.
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Пікірлер: 75

@gavinliu279 Жыл бұрын

This part is probably the hardest part of AP Macro, thank you!

@ReviewEcon Жыл бұрын

With this year's addition of Ample Reserves, I completely agree! Good luck with your exams!

@andrewmacdonald5367 Ай бұрын

If you came for Ample Reserves, its from 5:08 to 9:14! Thanks Jacob, the Michael Jordan of AP Macro

@ReviewEcon Ай бұрын

Your welcome!

@dennisegrater4593 Жыл бұрын

As an AP Macro teacher I appreciate your video so much. The CB vide was confusing at best and our brand new textbook doesn't have the update in it! Thank you for making this for me (and my students!!)

@ReviewEcon Жыл бұрын

I'm so glad you found it helpful! Good luck with the rest of the term!

@glennwatson3313 Жыл бұрын

I have learned a lot from your videos but usually they are more for students. This one is for econ teachers.

@YUBOYIN-es3lc 13 күн бұрын

I ‘ve watched your channel for a year，really helpful concept and idea， like your videos for micro and macro

@ReviewEcon 13 күн бұрын

Thank you! Good luck on your exam!

@derpythya8924 Жыл бұрын

Ample reserves aren't in our textbooks and my teacher's lesson over the topic was confusing. This video helped a lot, thanks!

@ReviewEcon Жыл бұрын

I am so glad it helped! This is a new addition to the AP Macro exam, so many resources are outdated. Good luck!!

@kaycrawley7496 Жыл бұрын

thank you sm for this! it really helped me understand the concept.

@ReviewEcon Жыл бұрын

You're very welcome! Good luck on your exams!

@angelavo5262 Жыл бұрын

thanks!! it really helped me with studying for econ

@ReviewEcon Жыл бұрын

Awesome! Good luck on your exams!

@galahad2000 2 ай бұрын

Thanks for these. At the end of this you discuss resolving gaps, but don’t connect the ample reserves graph to illustrate how expansionary or monetary policy look on that graph. Perhaps another video?🤪🤪

@ReviewEcon 2 ай бұрын

If there is a recessionary gap, expansionary monetary policy can close that gap. On the reserves graph expansionary monetary policy (when there are ample reserves) will cause the lower bound of the demand curve to shift downward (through a decrease in interest on reserves). That lower interest rate will increase gross investment (and other interest rate sensitive spending). That increase in spending shifts the average demand curve to the right closing the recessionary gap. I hope that helps!

@galahad2000 2 ай бұрын

Hey- thanks and agree - I teach this.. so know the theory, was just thinking it could be useful if I post to students. Sorry for my confusing post

@ReviewEcon 2 ай бұрын

Gotcha! I hadn't realized you were a teacher (but I recognize your name now. 😄) at 9:14 I connect the limited and ample reserves policies back to the AS/AD model. Since both ample and limited reserves focus on changing interest rates and those changed rates move the AS/AD model in identical ways, I figure as long as students understand how the policies change rates, I expect they should be able to connect those changed rates back to the AS/AD model. 🤞

@id0ntkn0w 12 күн бұрын

Great video helped me a ton. Btw letting you know at 5:59 I think your little note at the bottom right is wrong. Thanks so much for making these great videos!

@ReviewEcon 12 күн бұрын

Good catch! It should say "at lower rates, banks demand more reserves." I'll have to upload a fix next year. :-) Good luck on your exam!

@juliexiao7285 Жыл бұрын

Hello thank you so much for this video. Just wondering if we need to know how to draw the reserve market graph for frqs or if there will be frq questions on this topic.

@ReviewEcon Жыл бұрын

While I would be surprised if any questions require students to draw the reserves market graph the first year it's in the curriculum, it's definitely fair game for the exam. But I do expect there to be questions about the graph and ample reserves monetary policy. If it were me, I would practice drawing it a bit to be on the safe side.

@evk2486 12 күн бұрын

Thanks for the videos! Quick queestion, what does changing the discount rate do in an economy that is on an ample reserve system? Does it have any affect if the money supply is on the downward sloping or lower flat part of the graph? tysm!

@ReviewEcon 12 күн бұрын

When a country has ample reserves, we don't use the money market for monetary policy (so we won't deal with a money supply change). Then, we use the reserves market. And in that market a change in the discount rate will not change the policy rate since it only moves the upper end of the demand for reserves. Good luck on your exam!

@peterpeek Жыл бұрын

Thank you 🙏🏻

@ReviewEcon Жыл бұрын

You're very welcome! Good luck on your exams!

@midgette_201 Жыл бұрын

Thank you so much for this. I'm taking my final exam tomorrow and I finally understand this! :)

@ReviewEcon Жыл бұрын

Awesome! Good luck on your final!

@midgette_201 Жыл бұрын

@@ReviewEcon Thanks! I'll let you know how it goes 🙂

@midgette_201 Жыл бұрын

@@ReviewEcon went great! Got 55/60 :)

@ReviewEcon Жыл бұрын

Yeah! Way to go! 🎉🎊🤘😎

@iwanttogotocollege 14 күн бұрын

Thank you so much for this! My teacher was talking about something that shifts the upper and lower bounds at the same time, do you know what that could be?

@ReviewEcon 14 күн бұрын

When the central bank changes "Administered rates." That means they change the discount rate and interest on reserves together. Good luck Friday!

@iwanttogotocollege 14 күн бұрын

@@ReviewEcon Ohhh, thank you so much!!!

@kriwasused Жыл бұрын

I have my AP exam tomorrow you just saved me 30 mins of struggling

@ReviewEcon Жыл бұрын

Good luck on your exam!!

@myplace571 2 ай бұрын

how did it go? are you satisfied with ypur score?

@glennwatson3313 Жыл бұрын

I have never heard of Mzero. I have heard of M1 and M2.

@hedywang3489 2 ай бұрын

Thank you! This helped a lot. btw I want to ask a question, does expansionary monetary policy increase/decrease policy rate?

@ReviewEcon 2 ай бұрын

You're very welcome! Expansionary policy decreases the policy rate (Federal Funds Rate in the US), and contractionary policy increases it.

@Thomas-lx8fo Ай бұрын

You are the best

@ReviewEcon Ай бұрын

Thank you!! Good luck on your exams!

@brianlipiano7113 Жыл бұрын

w video, thank you!

@ReviewEcon Жыл бұрын

You're welcome! Good luck with your exams!

@amyliu7745 25 күн бұрын

In 2:45, what does it mean by "target their policy rate"? What is the policy in this case?

@ReviewEcon 25 күн бұрын

The "policy rate" is the interest rate banks charge each other for short-term loans. In the United States the policy rate is called the federal funds rate. Monetary policy (both contractionary and expansionary) focuses on changing the policy rate (Federal funds rate). I hope that helps!

@amyliu7745 24 күн бұрын

Does the AP test say policy rate or federal funds rate or both?

@ReviewEcon 24 күн бұрын

You need to know both. Policy rate is the general term, and Federal Funds Rate is what the policy rate is called in the United States.

@user-to6pt7fr4t 13 күн бұрын

Thank you so much for your amazing videos! Just one question, at 4:59, you said that expansionary policy uses open market purchase to increase the money supply. But I thought that open market purchase of bonds decrease the price of bonds and therefore decrease the money supply, and that Federal purchase of bonds were the ones that increased the money supply. Could you please help clarify?

@ReviewEcon 13 күн бұрын

A central bank's open market purchase of bonds does increase the price of bonds (because the purchase lowers interest rates), but bonds are not part of the money supply. The reason an open market purchase of bonds increases the money supply is because when the central bank purchases bonds, it pays for them with money. But the money wasn't yet money when the Central Bank held it. Only becomes money once the central bank has used it to buy the bonds. I hope that helps!.

@user-to6pt7fr4t 12 күн бұрын

Thank you for your answer. But doesn't the decreased price of bond increases the interest rate and therefore decrease the money supply?

@user-to6pt7fr4t 12 күн бұрын

Or was I wrong in the basic assumption of "Open Market purchase of bonds decrease the price of bonds?"

@amyliu7745 25 күн бұрын

For 0:55, doesn't changing interest rate also impact consumption?

@ReviewEcon 25 күн бұрын

It impacts some consumption like purchases of cars and potentially credit card spending. But the focus of the AP exam is primarily on the impact interest rates have on gross investment. You can still get these answers correct by mentioning changes interest rate sensitive consumer spending, but you do need to know the impact on gross investment as part of the exam.

@amyliu7745 25 күн бұрын

At 5:56, why does it say bank demands less reserves at higher rates and lower rates?

@ReviewEcon 24 күн бұрын

Banks must pay the interest rate when they borrow reserves. So it's like any other demand curve. When the price (interest rate here) is high, quantity demanded is low and vice versa.

@fair5075 11 күн бұрын

My teacher never mentioned anything about scarce reserve and ample reserve, is it required for the ap exam? Is it just the name of something since i do know about the monetary Policy actions

@ReviewEcon 11 күн бұрын

They are both on the exam. Your teacher may not have known about the update to the exam, but it is all covered here! Good luck!

@fair5075 11 күн бұрын

@@ReviewEcon thank you !!

@amyliu7745 25 күн бұрын

What's the difference between the discount rate and the nominal interest rate?

@ReviewEcon 25 күн бұрын

Discount rate is the interest rate banks are charged for short term loans when they borrow from the central bank (The central bank controls this interest rate directly). Any interest rate that has not been adjusted for inflation is a nominal interest rate. On the money market, we see nominal interest rate on the y-axis. That is typical interest rates (not adjusted for inflation) people pay when they borrow money.

@amyliu7745 24 күн бұрын

Could you give me an example of the last part?

@ReviewEcon 24 күн бұрын

Can you tell me exactly what you would like an example of? I'm not sure what you mean by last part.

@lordhello4674 Жыл бұрын

Good video but I think you made a typo at 5:55 as it should be that banks deserve more reserves at lower rates

@ReviewEcon Жыл бұрын

Oops! Thank you! I'll have to fix that for next year.

@andrewdover8965 2 ай бұрын

Thanks bro this vid saved my life! I cant concentrate when listening to that crackhead acdc economics 😭😭

@ReviewEcon 2 ай бұрын

I'm glad you found my video helpful! Good luck on your exams!

@glennwatson3313 Жыл бұрын

You misspelled reserves in the title.

@ReviewEcon Жыл бұрын

🤦 I really need a spell checker for my KZfaq! 😅 Fixed! Thank you!

@myplace571 2 ай бұрын

in a limited reserve which policy tool would the federal reserve use? on 9:07 you said that the interest rate is KEY, which is it for scarce reserves? apologies, i know my question is a bit specfic but im confused

@ReviewEcon 2 ай бұрын

Changing interest rates is the key to both limited and ample reserves monetary policy. That changes gross investment (and interest sensitive consumer spending) which shifts AD. For limited reserves interest rates are changed through changes in the money supply (discount rate, reserve requirement, and open market operations). For ample reserves interest rates are changed by moving the lower bound of the demand for reserves (by changing interest on reserves or administered rates).

@myplace571 2 ай бұрын

understood,thank you@@ReviewEcon

@wyatt7741 Жыл бұрын

I am looking at a practice FRQ from the college board that asks: "Assuming the banking system has ample reserves, identify one action the central bank can take to help the economy recover from the recession." Would the correct answer be to lower the interest of reserves rate in order to increase aggregate demand?

@ReviewEcon Жыл бұрын

I expect "decrease interest on reserves" or decrease administered rates" would be accepted. If the question calls for you to explain, I expect you will be required to say that the lower interest rates will increase gross investment (or other interest rate sensitive spending) and shift aggregate demand to the right. I don't think saying that aggregate demand increases will be enough for the explain point. Generally a connection to investment from the change in interest is needed.