Monetary Policy Graphs (2 of 2) - Macro 4.6

Mr. Clifford discusses the money market and its impact on aggregate demand, focusing on an inflationary gap where actual GDP exceeds potential GDP. The FED's role in adjusting the money supply to influence investment and aggregate demand is explained. A decrease in money supply raises interest rates, reducing investment and shifting aggregate demand left, closing the inflationary gap. The video also covers the FED's monetary policy tools: increasing reserve requirements, raising the discount rate, and selling bonds.

What is the economic condition called when actual GDP exceeds potential GDP?

• Recessionary gap

• Inflationary gap

• Stagflation

• Deflationary gap

What happens to interest rates when the Federal Reserve decreases the money supply?

• Interest rates fluctuate randomly

• Interest rates increase

• Interest rates remain unchanged

• Interest rates decrease

How does a higher interest rate affect business investment decisions?

• Increases investment

• Decreases investment

• Has no effect on investment

• Encourages more borrowing

Which of the following is NOT a method the Federal Reserve uses to decrease the money supply?

• Selling bonds

• Increasing the reserve requirement

• Decreasing the discount rate

• Increasing the discount rate

What is the term for the Federal Reserve's actions to control the money supply?

• Supply-side policy

• Fiscal policy

• Monetary policy

• Trade policy