Chapter 19, Problem 13P

To determine

Concept Introduction:

Money Supply: It refers to that amount of money which is in circulation within the economy at a particular point of time. It includes cash currency and all the liquid assets which can be converted into cash on demand.

Expansionary Monetary Policy: This policy is used by the government to expand the money supply in the economy. Money supply is increased by reducing the interest rate, as lower interest rates will encourage people to borrow more.

Contractionary Monetary Policy: This policy is used by the government to contract the money supply from the economy. Money supply is reduced by increasing the interest rate, as higher interest rates will de-motivate people to borrow.