The Money Market Graph
Key Features
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Money Demand (MD)
Why MD Slopes Downward
Money Demand Shifters
Money Supply (MS)
Why MS Is Vertical
Money Supply Shifters (Fed Tools)
How the Money Market Reaches Equilibrium
Changes in the Money Market: Four Scenarios
Scenario 1: MS Increases (Fed Buys Bonds)
Scenario 2: MS Decreases (Fed Sells Bonds)
Scenario 3: MD Increases (GDP or Price Level Rises)
Scenario 4: MD Decreases (GDP or Price Level Falls)
The Transmission Mechanism
Expansionary Monetary Policy
Contractionary Monetary Policy
Worked Examples for the AP Exam
Example 1: Standard FRQ
Example 2: What Happens When GDP Rises?
Example 3: Simultaneous Changes
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The Liquidity Trap
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The Money Market and Bond Prices
Connecting to Other Markets
AP Exam Tips
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Common Mistakes
Unit 4 topics
Unit 4 overview4.10Crowding Out4.1Financial Assets4.2Nominal vs. Real Interest Rates4.3Definition, Measurement, and Functions of Money4.4Banking and the Expansion of the Money Supply4.5The Money Market4.6Monetary Policy4.7The Loanable Funds Market4.8The Money Market and the Loanable Funds Market4.9Fiscal and Monetary Policy Actions in the Short Run