Understanding the Money Market and Aggregate Demand

What is the primary goal of the Federal Reserve when dealing with an inflationary gap?

• To increase government spending

• To maintain the current money supply

• To decrease the money supply

• To increase the money supply

How does a decrease in the money supply affect interest rates?

• Interest rates increase

• Interest rates fluctuate randomly

• Interest rates remain unchanged

• Interest rates decrease

What happens to investment levels when interest rates rise due to a decrease in the money supply?

• Investment levels decrease

• Investment levels remain the same

• Investment levels increase

• Investment levels become unpredictable

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

• Lowering taxes

• Selling bonds

• Raising discount rates

• Increasing reserve requirements

What is the term used to describe the Federal Reserve's actions to adjust the money supply and influence interest rates?

• Supply-side policy

• Trade policy

• Monetary policy

• Fiscal policy