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Macro Unit 4:
Key Concepts:
Key Concepts:
Money Market
Demand Shifters: Change in price level, change in income, and technology
The central bank controls the SUPPLY OF MONEY
Monetary Policy (Limited Reserves)
Changes AD ONLY
Change in reserve requirement, discount rate, and open market operations
Expansionary Monetary Policy: Decrease RR, Decrease DR, and BUY bonds
Contractionary Monetary Policy: Increase RR, Increase DR, and SELL bonds
Money Multiplier = 1 / reserve requirement
Gap = Multiplier * (Change in Money)
Monetary Policy (Ample Reserves)
Administered Interest Rates (set directly by the Fed):
1) Discount Rate (DR)
2) Interest on Reserve Balances (IORB)
Policy Rate = Federal Funds Rate
Recessionary Gap: Decrease DR, Decrease IORB
Inflationary Gap: Increase DR, Increase IORB
Review Activities:
Review Activities:
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