BE SURE TO WATCH BOTH VIDEOS.
Loom Video on Conventional Monetary Policy (LIMITED RESERVES)
Video on Monetary Policy since 2008 (AMPLE RESERVES)
Watch the video below for how to answer FRQ questions on AMPLE RESERVES.
This lesson covers Topic 4.6 in the AP Syllabus. Today we will learn about the tools available to central banks (The Federal Reserve in the United States) in making monetary policy. We will also study the effects of monetary policy on the macroeconomy.
Learning Target
Use current data to explain the influence of changes in spending, production, and the money supply on various economic conditions.
Use economic indicators to analyze the current and future state of the economy.
Criteria for Success
I will be able to use ideas related to the AS-AD model and the models of the money market ande market for loanable funds to analyze economic problems.
I will be able to demonstrate this understanding using graphs of the aforementioned models.
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Assignments
Read: Krugman (Modules 26-27 and 31)
Watch: The video lecture for today's topic (linked above).
Optional: The videos linked below.
Formative Assessment (MCQ's): You will take a formal assessment during class. The assessment will consist of multiple-choice questions and one FRQ from an old AP Exam. Doing the problem of the day and ensuring that you understand it will help you prepare for today's formative assessment and help to ensure that you understand the concepts in this lesson.
Problem of the Day
If the reserve requirement is 20% and the Fed sells $1 million of government bonds, what is the effect on the economy's reserves and money supply?
Now suppose the Fed lowers the reserve requirement to 5 percent, but banks choose to hold another 5 percent of deposits as excess reserves. Why might banks do so? What is the overall change in the money multiplier and the money supply as a result of these actions?
Using one graph of the money market and an AS-AD graph, explain the effect of the policies in (1) and (2)?