... increasing the money supply the rate of interest would decrease and increase aggregate demand. The money supply could be controlled a number of way. Using open market operations the government could issue debt to the non-financial sector and increase the money supply and buy back debt when it wanted to decrease it. Moreover, it could control the money supply using monetary base control. By using reserve assets a central bank can indirectly affect the activity of commercial banks and thus affect aggregate demand. The UK government has used inflation targeting to keep both inflationary expectations transparent but to also achieve its ultimate objective of price stability. Monetary policy has many problems associated with it. Monetarists believe that inflation is always and everywhere a monetary phenomenon and that the changes in the rate of interest or money supply will significant impact on AD. Keynesians argue that this isn't the case and ...

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