Topic 10: Monetary Policy

Key Points

  1. Define money and the money supply
  2. Understand bank reserves and the federal funds interest rates
  3. Understand how the Federal Reserve uses open market operations to change the federal funds interest rate
  4. Be able to describe the money multiplier process
  5. Analyze the short-run impact of monetary policy on the economy
  6. Be able to describe why the long-run impact of monetary policy is neutral
  7. Understand the distinction between expansionary and contractionary monetary policy
  8. Describe the costs of high inflation

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