1.1. We mentioned how difficult it can be for the Federal Reserve to actually control aggregate demand: Its control over the broader money supply (M1 and M2) is weak and indirect, plus it can't control velocity very much at all. Let's translate the following bullet points from the chapter into an expanded aggregate demand equation. You know that increa~ng AD means increasing spending growth, M +

v, but now you know that M (growth in M1 or M2, money measures that include checking accounts) depends on growth in the monetary base (MB) and on the money multiplier (MM).

That means an increase in AD requires an

~ ~ ~

increase in MB + MM + v.