Macro 4.6 Monetary Policy - Ample Reserves and Scarce Reserves - 2025 Update

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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[@glennwatson3313]

I'm going to the St Louis Fed next month for a three day seminar. They are planning a session on Ample Reserves.

[@ReviewEcon]

Nice! I'm jealous! Hopefully I can make it out to the St. Louis AP Institute at some point. 🤞

[@carotlover69]

mr reed should i get the total review booklet

[@ReviewEcon]

I'd say it depends (classic economist answer). It's designed for people who need to review micro or macro principles before exam day. If you've been learning micro or macro principles and have an upcoming exam, then yes! 😀

[@glennwatson3313]

You have helped me so much already that I hate to ask but what the heck. I will ask this same question at the Fed. The $3 trillion in ample reserves belongs to private banks right? But is that money actually held in the private bank's vaults or is it kept in the Fed because the Fed pays interest on it to the private banks, this interest rate being the IORB. I hope its the later because that it what I tell my kids.

[@ReviewEcon]

Good question! I don't know completely (maybe you'll get it a complete answer in St Louis). I understand the reserves are owned by banks (as assets on that balance sheet) . I expect most of it is digital/spreadsheet money and not physical money (since most money is digitally deposited). And if that is the case, at least most would be (digitally) on deposit with the FED where they earn IOR. That said, I do worry about a potential backlash to banks earning IOR for not lending.

[@ReviewEcon]

And no worries! Ask any questions you like. I'll answer when I can and tell you I don't know as necessary. 😅

[@glennwatson3313]

@@ReviewEcon Thanks for confirming what I though to be true. On another note, I believe AP Central did a poor job of rolling out the concept of ample reserves. When the concept first came out it was unclear what we should teach. There were different words and different graphs being used by the Fed and AP and the textbooks to illustrate ample reserves. People like you stepped in to lead the way in explaining how ample reserves worked but AP Central really dropped the ball.

[@glennwatson3313]

At 8:40 you said "banks" control administered rates like the Discount Rate and the IORB. Did you mean the Fed controls administered rates? I hope so, because that is what I told my kids last year.

[@ReviewEcon]

Should have said central banks as the slide indicates. I'll add that to my list of future fixes. 😀

[@ReviewEcon]

In the meantime, I just eddited out the reference. Thank you! :-)