Macro Final Study Guide Ms Money Supplied An increase in price level is inflation which raises interest rates A decrease in price level is deflation which lowers interest rates Monetary Policy Expansionary Monetary Policy actions which increase the money supply Contractionary Monetary Policy actions which decrease the money supply Buying 100K Bonds D Total Deposits 1 R E Initial D in Reserves 1 1 100 000 1 000 000 D Total Deposits D Money Supply D Cash held by the public 1 000 000 0 1 000 000 Selling 100K Bonds D Total Deposits 1 R E Initial D in Reserves 1 1 100 000 1 000 000 D Money Supply D Total Deposits D Cash held by the public 1 000 000 0 1 000 000 Buying bonds is expansionary monetary policy Selling bonds is contractionary monetary policy Fed buys bonds i r Consumption Investment Net Exports Aggregate Demand AD curve shifts R Fed sells bonds i r Consumption Investment Net Exports Aggregate Demand AD curve shifts L Crowding Out i r C I NX AD AD curve shifts left from where it would have been after expansionary fiscal policy if there were no crowding out Calculating current price of past price Equations Quantity Theory M V P Y 1 In the long run V 0 2 In the long run M does not affect Y IF V 0 THEN M 0 P Y AND P M Y WHICH IS M Y Phillips Curve Inverse relationship between inflation and unemployment Deposit Multiplier
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