Economic Systems Questions. See attached file for full problem description.
Monetary policies change the level of the money supply in a country. Expansionary monetary policy expands (increases) the supply of money, whereas contractionary monetary policy contracts (decreases) the supply of a country's currency. Monetary policy can be used to control inflation or improve the economy. Contractionary monetary policy has the effect of reducing inflation by reducing upward pressure on price levels. Expansionary monetary policy spurs economic growth lowering the interest rates, which lowers the cost of financing capital projects. So expansionary policy will also help households who are in debt, by lowering the interest rate they pay. It also encourages them to buy because often purchases are made on credit. Business benefits from the increased capital investment as well. GDP increases as demand increases. Unemployment drops. The federal budget will often show a surplus as the tax base increases.
The terms M1, M2, M3 refer to the monetary aggregates.
M1: Technically defined this is the sum of currency that ...