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AP Macroeconomics Pol 1 D a Define Monetary Policy and Related Terms B Explain Using Graphs As Appropriate the Short Run Effects of a Monetary Policy Questions

Compare limited- and ample-reserve monetary policy, then trace central-bank actions through interest rates, aggregate demand, output, and prices.

Syllabus
Effective Fall 2022
Course
AP Macroeconomics

Exam points

  • choose expansionary policy for a recessionary gap and contractionary policy for an inflationary gap
  • identify the bond trade, discount-rate, or reserve-ratio change used with limited reserves
  • calculate how an open-market operation changes the monetary base and maximum money supply
  • shift money supply in a money-market graph and determine the new nominal interest rate
  • change administered interest rates in an ample-reserve system and show the policy rate on a reserve graph

AP Macroeconomics Pol 1 D a Define Monetary Policy and Related Terms B Explain Using Graphs As Appropriate the Short Run Effects of a Monetary Policy Questions question 1

[Maximum number: 4]

Assume the economy of Jenland is in short-run equilibrium at a real output level above full-employment real output.

Question (a)

(a)

The banking system in Jenland has ample reserves. Identify a specific monetary policy action that the central bank of Jenland would implement to return the economy to full employment in the short run.

[ 1 ]

Question (b)

(b)

Draw a correctly labeled graph of the reserve market for Jenland, and show the effect of the central bank's action identified in part A on the policy rate.

[ 2 ]

Question (c)

(c)

Based on the change in the interest rate shown on your graph in part B, will each of the following increase, decrease, or remain the same in Jenland in the short run?

[ 1 ]

Question (i)

(i)

The price level. Explain.

[ 1 ]
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