Connecting Money Supply and Aggregate Demand

Mr. Clifford explains monetary policy using three graphs, focusing on the relationship between money supply, interest rates, and investment. He discusses how changes in money supply can address a recessionary gap by influencing interest rates and aggregate demand. The video also covers the FED's tools for adjusting money supply, including reserve requirements, discount rates, and bond purchases.

Who sets the supply of money in the economy?

• Banks

• Individuals

• The Federal Reserve

• The government

What happens to business investment when interest rates are high?

• It fluctuates unpredictably

• It increases significantly

• It remains unchanged

• It decreases

What is the immediate effect of increasing the money supply on interest rates?

• Interest rates are abolished

• Interest rates remain the same

• Interest rates decrease

• Interest rates increase

What kind of gap does a recessionary period indicate?

• Expansionary gap

• Stagnation gap

• Recessionary gap

• Inflationary gap

What is the effect of a lower interest rate on the quantity of investment?

• No change

• Increases it

• Decreases it

• Makes it volatile

An increase in investment leads to what change in aggregate demand?

• A fluctuation

• An increase

• A decrease

• No change

How does an increase in the money supply affect aggregate demand?

• No effect

• Decreases it

• Increases it

• Makes it unpredictable

What is the primary goal of monetary policy?

• To increase the nation's wealth

• To ensure political stability

• To stabilize the banking system

• To control inflation and unemployment

Which of the following is NOT a tool of the Federal Reserve?

• Directly setting interest rates

• Buying or selling bonds

• Changing the reserve requirement

• Adjusting the discount rate

What action does the Federal Reserve take to directly increase the money supply?

• Increasing the reserve requirement

• Raising the discount rate

• Buying bonds

• Selling bonds