Question

If the US economy is in a recession and the Federal Reserve follows expansionary monetary policy,...

If the US economy is in a recession and the Federal Reserve follows expansionary

monetary policy, will the following rise or fall?

a. money supply __________

b. excess reserves _________

c. interest rates __________

d. investment ____________

e. aggregate demand _________

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Answer #1

Federal Reserve Bank adopt for expansionary monetary policy by open market operation through Federal Open Market Committee.

When expansionary monetary policy is applied then there is increase in money supply, reserve got decrease.

The Federal Reserve Bank lowers the interest rate so that there can be more lending to the commercial banks and this causes more investment in the economy the investment rise causes more consumption and ultimately leads to shift of aggregate demand to right.

Money supply -increase

Reserve-decrease

Int rate-lower

Investment-increase

Agg demand-increase

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