Macro 4.1- Money Market and FED Tools (Monetary Policy)

The video tutorial by Mr. Clifford on ACDC Econ covers the basics of monetary policy, focusing on the money market graph, which illustrates the supply and demand for money. It explains the reasons for money demand, such as transactions and liquidity preference, and the role of the Federal Reserve in supplying money. The tutorial also covers the impact of interest rates on money demand and the tools used by the Fed to adjust the money supply, including the reserve requirement, discount rate, and open market operations. The video emphasizes understanding interest rates as key to grasping monetary policy.

What are the two main reasons people demand money?

• For transactions and to pay off debts

• For transactions and to hold liquid assets

• For transactions and to invest in stocks

• For transactions and as a store of value

What does a high interest rate typically lead to in terms of money demand?

• Decreased demand for bonds

• Increased demand for bonds

• Decreased demand for real estate

• Increased demand for cash

Who is responsible for supplying money in the economy?

• Private Investors

• The Federal Reserve

• Commercial Banks

• The Treasury Department

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

• Interest rates remain unchanged

• Interest rates fluctuate randomly

• Interest rates increase

• Interest rates decrease

What is the reserve requirement?

• The amount of money banks can lend

• The total amount of money in circulation

• The interest rate charged by the Fed

• The amount banks must hold in reserves

How does the Federal Reserve use the discount rate to influence the money supply?

• By increasing the discount rate to increase the money supply

• By decreasing the discount rate to decrease the money supply

• By increasing the discount rate to decrease the money supply

• By decreasing the discount rate to increase the money supply

What is the primary action taken in open market operations to increase the money supply?

• Raising the discount rate

• Increasing the reserve requirement

• Buying government bonds

• Selling government bonds