Question

Explain how a changes in money supply can affect a new college graduate.

Answer 1

Suppose the money supply increases. This will decrease the interest rate which will decrease the cost of borrowing. Therefore, quantity of investment demanded will increase. On the other hand, increase in money supply increases consumption spending because consumers have more money in hand to spend now. Increase in consumption and investment spending increases aggregate demand. As a result, equilibrium real GDP increases. Increase in equilibrium real GDP means more jobs will be generated, more people will be employed. A new college graduate who is looking for a job, will find it easier to get one.

The opposite can happen if money supply decreases.