Money Supply Shifters (2 of 2)- Macro Topic 4.5

Mr. Clifford introduces monetary policy, focusing on the money market graph and three key shifters of money supply: open market operations, the discount rate, and reserve requirements. Open market operations involve the Fed buying or selling government bonds to influence the money supply. The discount rate is the interest rate the Fed charges banks, affecting borrowing costs and money supply. Reserve requirements dictate the percentage of deposits banks must hold, impacting their ability to loan money. The video concludes with a recap of how these tools affect interest rates and aggregate demand.

What happens to the money supply when the Federal Reserve buys government bonds?

• The money supply decreases.

• The money supply remains unchanged.

• The money supply increases.

• The money supply fluctuates randomly.

How does an increase in the discount rate affect the money supply?

• It causes the money supply to increase unpredictably.

• It has no effect on the money supply.

• It makes borrowing more expensive, decreasing the money supply.

• It makes borrowing cheaper, increasing the money supply.

What is the reserve requirement?

• The total amount of money in circulation.

• The percentage of deposits banks must hold in reserve.

• The interest rate charged by the Fed to banks.

• The amount of money banks can lend out.

If the Federal Reserve lowers the reserve requirement, what is the likely effect on the money supply?

• The money supply will decrease.

• The money supply will become unstable.

• The money supply will increase.

• The money supply will remain the same.

Which of the following is NOT a tool used by the Federal Reserve to influence the money supply?

• Open market operations

• Discount rate

• Reserve requirement

• Taxation policy