Course: Principles of Macroeconomics (ECON 2) · Silver Oak University (fictional sample) · Prof. Ashford
Focus: Monetary Policy, Interest Rates & Aggregate Demand — the Transmission Mechanism · Objective 7 · SLO A & B

📋 Module Overview Page — "Start Here" (Canvas: Page, published)

Week 11 — Monetary Policy, Interest Rates & Aggregate Demand: The Transmission Mechanism

Last week you built the money market and watched the Fed's tools move the interest rate. This week you follow that interest-rate change all the way to the finish line: how does a Fed action actually change real output and the price level? That path — money supply → interest rate → investment → aggregate demand → prices & output — is the monetary-transmission mechanism, and it's the last link connecting "the Fed does something" to "the economy responds." You'll trace the chain forward for expansionary policy, then run it in reverse for contractionary policy, and meet the classic debate about whether this kind of "fine-tuning" really works.

A calendar note: Wednesday, Nov 11 is Veterans Day — no class that day. We meet Monday and pick back up Thursday.

The big question: By what chain of events does a Fed action to change the money supply end up changing real GDP and the price level — and what happens if that chain breaks down?

By the end of this week, you can:

• trace the monetary-transmission mechanism link by link: MS↑ → r↓ → I↑ → AD shifts right → P↑, Y↑ (and reverse every arrow for contractionary policy);
• distinguish expansionary from contractionary monetary policy and predict each one's effect on the price level and real output;
• explain, in plain language, why an interest-rate change moves investment (and, more mutedly, some consumption) — and why that's different from the fiscal-policy channel;
• name the role of lags and expectations in monetary policy, including the "long and variable lags" critique associated with the monetarist tradition, and weigh — evenhandedly — whether monetary policy is a precise "fine-tuning" tool or a "blunt instrument."

Do this, in order:

1. Read & watch — the Week 11 resources (≈35 min). → Readings & Resources page
2. Lecture Tutorial — trace the transmission chain with your AI tutor (≈45 min). Due Sun, Nov 15. → submit the chat share link + summary
3. Practice Exercises — 6 quick reps, ungraded (≈15 min).
4. Quiz 11 — 10 questions, closed to AI (≈20 min). Due Sun, Nov 15.
5. Discussion 11 — "Fine-tuning or blunt instrument?" Initial post Fri, Nov 13, replies Sun, Nov 15.
6. Assignment 11 — the transmission-mechanism problem set (100 pts). Due Sun, Nov 15.
7. Workshop 11 — Graph & Model Workshop — "Trace the Transmission Mechanism": complete the chain table link by link, then reverse it for contractionary policy (50 pts). Due Sun, Nov 15.

A note before you start: this week is the payoff for Weeks 9 and 10 — money creation and the money market both existed to set up this one chain. Once you can walk the chain forward and backward without skipping a link, you understand why economists argue about how well monetary policy actually works in practice. You've got this. 💪

📣 Welcome Announcement (Canvas: Announcement; available_from_offset_days = 0 — posts Mon, Nov 9)

Subject: The chain reaction behind a Fed rate move 👋

Hi everyone,

Last week you plotted the money market and watched the Fed push the interest rate up or down. This week we ask the question that actually matters to the rest of the economy: so what? What happens after the interest rate moves?

This week, don't miss:

• The transmission mechanism — a five-link chain: the Fed changes the money supply → the interest rate moves → investment spending responds → aggregate demand shifts → the price level and real output land somewhere new. We'll trace it with real, pre-computed numbers, link by link.
• Expansionary vs. contractionary — same chain, opposite direction. If you can run it forward, you can run it backward.
• A reminder for the week: Wednesday is Veterans Day — no class. Use the extra day to get ahead on the readings or the tutorial.
• The debate we'll open (and keep going in Discussion 11): is monetary policy a precision tool for fine-tuning the economy, or is it more of a blunt instrument that acts with a lag nobody can see coming? Both views get their full due this week.

Start with the Module Overview ("Start Here"), then the readings, then your AI Lecture Tutorial. Bring a question to class — the best ones usually come from wherever the chain felt shakiest.

See you Monday,
Prof. Ashford