This lesson covers Topics 4.2, 4.5, and 4.7 in the AP Syllabus. Today we will study how interest rates are determined using the models of the money market and the market for loanable funds.
Learning Target
Use current data to explain the influence of changes in spending, production, and the money supply on various economic conditions.
Use economic indicators to analyze the current and future state of the economy.
Criteria for Success
I will be able to use ideas related to the AS-AD model and the models of the money market ande market for loanable funds to analyze economic problems.
I will be able to demonstrate this understanding using graphs of the aforementioned models.
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Assignments
Read: Krugman (Modules 28-29)
Watch: The video lecture for today's topic (linked above).
Optional: The videos linked below.
Formative Assessment (MCQ's): You will take a formal assessment during class. The assessment will consist of multiple-choice questions and one FRQ from an old AP Exam. Doing the problem of the day and ensuring that you understand it will help you prepare for today's formative assessment and help to ensure that you understand the concepts in this lesson.
Problem of the Day
Explain how the supply of money is determined (money market).
Explain why the money demand curve slopes down (money market).
Explain why the supply of loanable funds is upward sloping (market for loanable funds).
Explain why the demand for loanable funds is downward sloping (market for loanable funds).
Assume the government employs an expansionary fiscal policy:
Use a graph of the money market to show the effect of this policy on the nominal interest rate.
Use a graph of the market for loanable funds to show the effect of this policy on the real interest rate.
Can't figure out when to use the money market and when to use the loanable funds market?
Try this link from Jason Welker.
Or this one from the College Board.