Interest is a fee that a lender pays to a borrower for the use of funds.

The higher the interest rate, the higher the opportunity cost of holding money; thus, the higher the demand for money.

A reasonable measure of the number of transactions in the economy is aggregate output.

Increases in the price level cause an increase in the demand for money.

An excess supply of money will cause households and firms to buy more bonds, driving interest rates down.

If the Fed wants to create upward pressure on the interest rate, it can buy government securities in the open market.

An increase in the price level is like an increase in output. Both events cause an increase in money demand.

Easy monetary policy refers to the Fed policies that expand the money supply.

If the Fed wants to stimulate economic activity, it will increase the money supply.

The main goal of the Fed is to try to stimulate economic activity continuously, by expanding the money supply when the demand for money increases.