Gretel's AP Macroeconomics Blog

B alance of payments  is the measure of money inflows and outflows between the United States and the Rest of the World (ROW). Inflows are credits and outflows are debits . The balance of payments is divided into three accounts: current account , capital/financial account , and official reserves account . Current Account b alance of trade or net exports exports of goods/services - import of goods/services exports create a credit to the balance of payments imports create a debit to the balance of payments n et foreign income income earned by U.S. owned foreign assets - income paid to foreign-held U.S. assets ex: interest payments on U.S. owned Brazilian bonds - interest payments on German-owned U.S. Treasury bonds n et transfers foreign aid -> a debit to the current account ex: immigrant migrant workers sending money to family back home Capital/Financial Account  balance of capital ownership includes the purchase of both real and financial a

The loanable funds market is where savers and borrowers exchange funds at the real interest rate (r%) demand for loanable funds , or borrowing , comes from households, firms, government, and the foreign sector. The demand for loanable funds is, the supply of bonds supply of loanable funds , or savings , comes from households, firms, government, and the foreign sector the supply of loanable funds is also the demand for bonds D emand for loanable funds = borrowing (supplying bonds) , c hanges in the demand for loanable funds occur when there is: More borrowing = more demand for loanable funds  ex: government deficit spending = more borrowing = more demand for loanable funds, therefore r% increases Less borrowing = less demand for loanable funds  ex: less investment demand = less borrowing = less demand for loanable funds, r% decreases supply of loanable funds = saving (demand for bonds) , c hanges in the supply of loanable funds occur when: More

The money market is where the Federal Reserve and the users of money interact, which determines the nominal interest rate (i%) and is made up of two parts: Money demand (MD) which comes from households, firms, government, and the foreign sector Money supply (MS) which is determined only by the Federal Reserve Money demand is divided into three parts: Transaction demand which is the demand for money as a medium of exchange (independent of interest rate) Asset demand which  is the demand for money as a store of value (dependent of the interest rate) Total money demand MD is downward sloping because at high interest rates people are less inclined to hold money and more inclined to hold stocks and bonds At lower interest rates people sacrifice less when they hold money Money supply is determined by the Federal Reserve because the Federal Reserve has control over the supply of money If you still don't understand, here's some vids 2 help