When the federal reserve increases the money supply, interest rates decrease, and investment increases.
The amount of money in circulation at any given time is referred to as the money supply. There are many ways to define "money," but common measurements often include circulation-level money and demand deposits.
The money aggregates also referred to as M1, M2, and M3, are measurements of the US money supply. Money in circulation (M1) also includes checkable bank deposits. Savings deposits under $100,000 as well as money market mutual funds are included in M2, in addition to M1. Large-time deposits in banks are added to M2 to create M3.
The amount of money in circulation and interest rates are negatively connected. Lower market interest rates as a result of increased money supply lower consumer borrowing costs. A smaller money supply, on the other hand, is more likely to cause higher market interest rates, which raises the cost of borrowing for consumers.
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