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Unformatted text preview: real GDP, employment, and the price level Federal funds rate- the interest rate banks charge each other for overnight loans Changes in interest rate will not affect government purchases, but they will affect other three components f aggregate demand (1) consumption (2) Investment (3) Net Export Expansionary Monetary Policy the Federal Reserves increasing money supply and decreasing interest rate to increase real GDP Contractionary Monetary Policy the Federal Reserves adjusting the money supply to increase interest rate to reduce inflation...
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- Fall '08