1. Monetary Policy Review

2. Draw a graph of the money market showing an increase in the money supply
Name 3 things the FED can do to increase the money supply.
When would the FED use this strategy?
What are the 2 names for this policy?

3. Draw a graph of the money market showing a decrease in the money supply
Name 3 things the FED can do to decrease the money supply.
When would the FED use this strategy?
What are the 2 names for this policy?

4. While at full employment, the FED sells bonds on the open market.
Draw a graph of the money market and the effect on AD/AS. What happens to P, GDP, and unemployment?
While at full employment, the FED sells bonds on the open market.

5. While at full employment, the FED lowers the reserve ratio.
Draw a graph of the money market and the effect on AD/AS. What happens to P, GDP, and unemployment?
While at full employment, the FED lowers the reserve ratio.

6. During a period of inflation, the FED raises the discount rate.
Draw a graph of the money market and the effect on AD/AS. What happens to P, GDP, and unemployment?
During a period of inflation, the FED raises the discount rate.

7. While at full employment, the FED buys bonds on the open market.
Draw a graph of the money market and the effect on AD/AS. What happens to P, GDP, and unemployment?
While at full employment, the FED buys bonds on the open market.

8. During a period of inflation, the FED raises the reserve ratio.
Draw a graph of the money market and the effect on AD/AS. What happens to P, GDP, and unemployment?
During a period of inflation, the FED raises the reserve ratio.

9. During a recession, the FED lowers the discount rate.
Draw a graph of the money market and the effect on AD/AS. What happens to P, GDP, and unemployment?
During a recession, the FED lowers the discount rate.

10. The FED increases the money supply
What happens to the interest rate?
What happens to the value of the dollar in the foreign exchange market?
Why is this the case?

11. The FED decreases the money supply
What happens to the interest rate?
What happens to the value of the dollar in the foreign exchange market?
Why is this the case?

12. Draw a graph of the loanable funds market
Draw a graph of the loanable funds market. What happens to the real interest rate?
The government eliminates the tax people pay on interest from their savings accounts.

13. The government increases the size of the budget deficit.
Draw a graph of the loanable funds market. What happens to the real interest rate?
The government increases the size of the budget deficit.