Monetary Policy (Money Supply) FRQ Cheat Sheet

Money Supply & The FED (Monetary Policy)

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.

Notice we can see some trends:

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.

    Money Supply

• 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)?