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How Increasing the Money Supply Affects the Economy
How Increasing the Money Supply Affects the Economy
This Demonstration shows the implications for the economy if the money supply is increased. It uses the four key graphs taught in AP Macroeconomics. Initially, this change decreases interest rates, as seen on the money market graph. This increases the quantity of investment, shown on the investment demand graph, which increases aggregate demand. The increase in price level causes inflation and reduced unemployment, shown on the Phillips curve graph.
On the money market graph, MS stands for "money supply" and MD stands for "money demand." On the investment demand graph, ID stands for "investment demand." On the aggregate supply and demand graph, AS stands for "aggregate supply" and AD stands for "aggregate demand." On the Phillips curve graph, LRPC stands for "long-run Phillips curve" and SRPC stands for "short-run Phillips curve."