Demand-side Policies (Short-run Stabilization)

• Monetary Policy: Central bank's magic wand, controlling money supply and interest rates.
• Fiscal Policy: The government's toolbox to tinker with spending and taxes.

Think of them like the controls on your favorite video game; you can speed up or slow down the game as needed.

Supply-side Policies (Production Focus)

• Market-Based & Interventionist Policies: Tweaking the game's rules to make everything run smoother and faster.

Example: Lowering taxes for businesses (Fiscal Policy) could be like giving a speed boost in a racing game.

 The Evolution of Money

• Barter System: Swapping chickens for apples.
• Commodity Money: Cattle, shells, gold – even ancient loot boxes!
• Fiat Money: Like video game currency; it's valuable because we say so (e.g., euros, dollars).

Functions of Money

• Medium of Exchange: The universal "buy" button.
• Unit of Account: The scoreboard.
• Store of Value: Your virtual piggy bank.
• Standard of Deferred Payment: The "pay later" option.

Example: Using gold bars in Minecraft as money - they can be traded, counted, saved, or used in future trades.

 Central Bank Functions

• Note-Issuing: Making the game currency.
• Government Bonds: The investment side-quest.
• Monetary Policy Management: The game master.
• Exchange Rate Policy: Balancing the in-game trade.
• Regulation & Supervision: The game's referee.
• Lender of Last Resort: The emergency power-up.

Commercial Banks & Fractional Reserve System

• Borrowers & Lenders Matchmaker: The side-quests facilitator.
• Reserve Requirement Ratio (r r): How much loot they must keep on hand.
• Excess Reserves: The extra loot for more quests.

Example: Banks act like the quest-givers in RPGs, handling various tasks and regulating the flow of in-game currency.