Money, banking, and how a central bank steers the economy. The functions and measures of money, how banks create money through lending, the money market, monetary policy, and the loanable funds market.
Seven topics from the College Board CED, in order.
Topic 4.1
Financial Assets
Bonds, stocks, and other financial assets — how they're valued and how interest rates and bond prices move inversely.
Topic 4.2
Nominal vs. Real Interest Rates
Adjusting the nominal interest rate for expected inflation to find the real cost of borrowing or return on saving.
Topic 4.3
Definition, Measurement & Functions of Money
Medium of exchange, store of value, unit of account — and how M1 and M2 measure the money supply.
Topic 4.4
Banking & Money Creation
Fractional reserve banking, required reserves, excess reserves, and how new loans create new money.
Topic 4.5
The Money Multiplier
How an initial deposit expands into a much larger increase in the money supply through repeated lending.
Topic 4.6
The Money Market
Money demand and money supply determining the nominal interest rate, and how the Fed shifts this market.
Topic 4.7
Monetary Policy & the Loanable Funds Market
Open market operations, the discount rate, and reserve requirements — and how the loanable funds market sets the real interest rate.
About Unit 4
Unit 4 shifts the focus from the real side of the economy (Units 2–3) to the financial sector — money, banks, and the central bank's tools for steering the economy. You'll learn what actually counts as "money," how the banking system multiplies an initial deposit into a much larger expansion of the money supply, and how the Federal Reserve uses monetary policy to influence interest rates and, ultimately, aggregate demand.
This unit is roughly 18–23% of the AP Macro exam and takes about 15–18 class periods. The money market graph and the loanable funds market graph are tested constantly, and Unit 4's monetary policy tools pair directly with Unit 3's fiscal policy tools — together they form the two main levers of macroeconomic stabilization covered in Unit 5.
The College Board ties Unit 4 to three Big Ideas that recur across the whole course:
Big Idea 1
Money facilitates exchange — and trust makes it work
Big Idea 2
Banks create money — through lending, not printing
Big Idea 3
Central banks steer the economy through interest rates