Monetary Policy Graphs (1 of 2) - Macro 4.6

Mr. Clifford discusses monetary policy, focusing on the relationship between interest rates and investment, and how these affect aggregate demand. He explains how to address a recessionary gap by increasing the money supply, which lowers interest rates and boosts investment, thereby increasing aggregate demand. The video also covers the tools the Federal Reserve uses to manage the money supply, such as lowering reserve requirements, discount rates, and buying bonds.

What determines the quantity of investment in the economy?

• The amount of exports

• The equilibrium interest rate

• The inflation rate

• The level of government spending

What is the effect of a recessionary gap on the economy?

• It leads to overproduction

• It results in full employment

• It indicates production below full employment GDP

• It causes inflation

How does an increase in the money supply affect interest rates?

• It has no effect on interest rates

• It decreases interest rates

• It increases interest rates

• It stabilizes interest rates

Which of the following is NOT a tool used by the Fed to increase the money supply?

• Lowering the discount rate

• Buying bonds

• Increasing the discount rate

• Lowering the reserve requirement

What is the overall strategy called that involves adjusting the money supply to influence the economy?

• Monetary policy

• Fiscal policy

• Trade policy

• Supply-side policy