Key Takeaways
Lesson Description
Key Takeaways
• Financial markets connect savers and borrowers through loanable funds.
• The banking system creates money through fractional reserve banking.
• The Federal Reserve controls the money supply using monetary policy.
• Interest rates influence investment and economic activity.
• The money market determines the equilibrium interest rate.
Must Know Models
Money Market
Loanable Funds Market
Must Know Equations
Money Multiplier = 1 / Reserve Requirement
Must Know Vocabulary
Federal Reserve (Fed)
Reserve Requirement
Money Multiplier
Required Reserves
Excess Reserves
Open Market Operations
Discount Rate
Federal Funds Rate
Loanable Funds Market
Money Demand
Money Supply
AP Exam Focus
• Explain how the Fed changes the money supply.
• Draw Money Market and Loanable Funds graphs.
• Calculate the money multiplier.