How the Federal Reserve Changes the Money Supply and Affects Interest Rates


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question 1 of 3

If all other factors remain equal, what would happen to interest rates when the amount of money circulating in the economy is increased?

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1. How would economists graphically illustrate a decrease in the money supply?

2. How does an increase in the money supply impact economic output within the US economy?

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About This Quiz & Worksheet

This quiz will mainly ask you to complete sentences with the correct answer. You'll be tested on increases and decreases in the money supply and their effects.

Quiz & Worksheet Goals

The quiz will help you assess what you know about the following:

  • What an increase in the quantity of money causes
  • Illustrating a decrease in the money supply
  • What would happen if the Federal Reserve decreased the growth rate of the money supply in a given scenario
  • When the Fed's monetary policy would most affect the Real GDP

Skills Practiced

  • Reading comprehension - ensure that you draw the most important information from the related money supply lesson
  • Critical thinking - apply relevant concepts to examine information about the effects of increases and decreases in money supply in a different light
  • Defining key concepts - ensure that you can accurately define main terms, such as Federal Reserve and GDP

Additional Learning

Go to the partner lesson called How the Federal Reserve Changes the Money Supply and Affects Interest Rates for more information. This lesson covers these objectives:

  • Explore how the Fed manipulates the money supply
  • Understand monetary policy
  • Review effects of expansionary monetary policy
  • Detail the contractionary monetary policy and its effects