JB's AP MACROECONOMICS
Unit 4
Financial Sector
#7 Money Market
Determinants of Money Demand:
Price Level (inflation)
Real GDP/real income
Real Interest Rates
Changes in Technology (ATMs, Debit Cards, Credit Cards)
Determinants of Money Supply:
Federal Reserve's Expansionary Monetary Policy (buy bonds, decrease the discount rate, and/or decrease the reserve requirement)
Federal Reserve's Contractionary Monetary Policy (sell bonds, increase the discount rate, and/or increase the reserve requirement)
Review Formulas:
Money Demand (MD)
PL↑ → MD↑ → i%↑, Q↑
PL↓ → MD↓ → i%↓, Q↓
Y↑ → MD↑ → i%↑, Q↑
Y↓ → MD↓ → i%↓, Q↓
r%↑ → MD↓ → i%↓, Q↓
r%↓ → MD↑ → i%↑, Q↑
No/Less ATMs, no debit cards, no credit cards → MD↑ → i%↑, Q↑
More ATMs, more debit cards, more credit cards → MD↓ → i%↓, Q↓
Money Supply (MS)
Expansionary Monetary Policy (buy bonds, decrease the discount rate, and/or decrease the reserve requirement) → MS↑ → i%↓, Q↑
Contractionary Monetary Policy (sell bonds, increase the discount rate, and/or increase the reserve requirement) → MS↓ → i%↑, Q↓
Tools of the Federal Reserve (3)
1. Open-Market Operations
Buy Bonds → MS↑ (targets lower federal funds rate)
Sell Bonds → MS↓ (targets higher federal funds rate)
2. Discount Rate
Discount Rate↓ → MS↑
Discount Rate↑ → MS↓
3. Required Reserve Ratio/Reserve Requirement
Reserve Requirement↓ → MS↑
Reserve Requirement↑ → MS↓
Federal Reserve System Map
The Federal Reserve System
Federal Open Market Committee (FOMC)
MONEY MULTIPLIER
rr = Reserve Requirement/Ratio
Money Multiplier = 1/rr
TIME VALUE OF MONEY/PURCHASING POWER OF MONEY
r = real interest rate
Future Value (FV) = Present Value (PV) x (1 + r)
Present Value (PV) = Future Value / (1+r)
EQUATION OF EXCHANGE
M = Money Supply
V = Velocity of Money
P = Price Level
Y = Real GDP
MV = PY
Econ Review - Jacob Reed
ACDC - Mr. Clifford's Video Reviews
Fractional Reserve Banking, Money Creation, Money Supply, Interest Rates, Federal Reserve, Monetary Policy
Crash Course Economics (with Adriene Hill and Jacob Clifford)
Unit 4 Macroeconomics - Money Creation and Monetary Policy