Here is a FRQ cheat sheet for Monetary Policy (money supply) and soon I will add a cheat sheet for this section of the AP Macroeconomics exam.
Demand for Money
- Increases or decreases based on people's desire to hold more or less currency (Cash)
- Incomes change (Income Increases, (C) Increases, (I) increases, (AD) Increases, Output increases, therefore DM Increases)
- Income change (Income Decreases, (C) Decreases, (I) Decreases, (AD) Decreases, Output Decreases, therefore DM Decreases)
- Show how this effects nominal interest rates and the price level.
- How the FED can counteract the effects.
- What is the open market operation the FED will use? Expansionary(Buy bonds)
- What is the open market operation the FED will use? Contractionary (Sell bonds)
- Show what happens to the Nominal Interest Rate.
- What happens to the Price Level and the Real Interest Rate?
- What happens to Aggregate Demand (AD)?