AP Macroeconomics – The Money Market and the Loanable Funds Market

This lesson supports the Financial Sector section of the Advanced Placement Economics course. It introduces students to the money market and loanable funds market. These two markets are used later to explain the effects of monetary and fiscal policy on the economy through the aggregate supply/aggregate demand (AS/AD) model.

This lesson appears as Lesson 3 in Unit 4: Financial Sector in CEE’s Advanced Placement Macroeconomics(4th Edition).

In this lesson from Advanced Placement Macroeconomics (4th Edition), students are introduced to the Money Market and the Loanable Funds Market. They learn that the quantity of money is determined by the Federal Reserve through its control of the reserve requirement and money creation by the banking system. Students also learn that the loanable funds market determines the real interest rate (price of loans).

Bell Ringer: Ask students if they have ever seen a Federal Reserve Note and, if so, where.

• Define transactions demand for money, precautionary (liquidity) demand for money, and the speculative demand for money, and discuss the motives for holding assets as money.
• Identify the slope of the money demand curve and the factors that cause the demand for money to change.
• Identify the slope of the money supply curve and what will cause the money supply curve to shift.
• Explain how interest rates are determined in the money market.
• Explain the differences and similarities between the money market and the loanable funds market.
• Identify and explain the slope of the demand and supply curves for loanable funds and the factors that cause the curves to shift.
• Explain how interest rates are determined in the loanable funds market.

• The Money Market and the Loanable Funds Market, Teacher Lesson
• The Money Market and the Loanable Funds Market, Student Resource Manual
• The Money Market and the Loanable Funds Market, Solutions

Please refer to The Money Market and the Loanable Funds Market, Teacher Lesson.

Not available for this lesson.

Not available for this lesson.

Please refer to The Money Market and the Loanable Funds Market, Student Resource Manual.