Money supply is the money circulating in the economy which is created by the FED, the depositors, and investors.
Each of the 12 Federal Reserve banks perform the following: a. clear checks; b. issue new currency; c. withdraw damaged currency from circulation; d. administer and make discount loans to banks in their districts; e. evaluate proposed mergers and applications for banks to expand their activities; f. act as intermediaries between the business community and the Fed; g. examine bank holding companies and state-chartered banks; h. collect data on local business conditions; i. use their staff of professional economist to research topics related to monetary policy (Mishkin 369- 370).
The money supply can be changed by increasing our deposits held by banks. This money creates a repercussion of effects in the economy when borrowed by companies who use this for their operations. Through the money multiplier, the invested money could increase employment an output more than its actual value.
(3.) You are appointed as the chair of FRB. Congratulations! Chair, economy is in recession what are the policy measures you will undertake to push GDP toward potential GDP What are the problems of implementing monetary policy in practice
Under an expansionary policy, the central bank must increase the money supply and lower the short- term interest rates. The Fed can engage in the following: a. open market purchase which expands reserves and monetary base; b. lower the discount rate which encourages borrowing by banks; or c. lower the reserve requirements among banks.
Part Three: write a few sentences summarizing what you have learned and how learning this will help you personally. :) Thanks!!
The most important thing which I have learned so far is the interdependence of the players in an economy. It is very important to note that the action of one player can have a tremendous effect in other sectors. Learning the functions of money, how money is controlled and managed, and how it can be used to stimulate or slow down the economy is really something very interesting to me. Knowing that my actions can influence the economy, I can now align my decisions in order to help the FED to achieve its economic goals. This is very important noting the forecasted downturn in the US economy in the coming future.
Part Four:What is money supply, M1 and M2 which definition of money supply is more liquid and why
M1 is the narrowest measure of money which includes currency, checking account deposits and travelers checks. The M2 includes the M1 plus other assets that have check-writing features such as small-denomination time deposits,