Question

A decrease in the money supply may __________ total expenditures and thus __________ aggregate demand.

Answer 1

Answer:

A decrease in the money supply may lower total expenditures and thus lower aggregate demand.

Answer 2

Answer:

Lower; lower.

Explanation:

The Federal Reserve System ( popularly referred to as the 'Fed') was created by the Federal Reserve Act, passed by the U.S Congress on the 23rd of December, 1913. The Fed began operations in 1914 and just like all central banks, the Federal Reserve is a United States government agency.

The buying and selling of bonds government owned by the Federal Reserve (Fed) is generally referred to as open market sales.

An open market sale of U.S. Treasury securities by the Fed will cause the Banking System's balance sheet not to show a net change in liabilities or assets but only a change in the composition of assets with securities increasing while causing a decrease in the reserves of thecountry.

Basically, an open market sales increase money supply and as such making more money to be in circulation and in the economy

However, a decrease in the money supply in a country may lower total expenditures and thus lower (decrease) aggregate demand of goods and services for the population.