Introduction to Finance: Markets, Investments, and Financial Management, 15th Edition

CHAPTER 5

Policy Makers and the Money Supply

Chapter Learning Objectives...

AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO DO THE FOLLOWING:

• Discuss the objectives of national economic policy and the conflicting nature of these objectives.
• Identify the major policy makers and briefly describe their primary responsibilities.
• Discuss how the U.S. government responded to the 2007–2009 perfect storm.
• Identify the policy instruments of the U.S. Treasury and briefly explain how the Treasury manages its activities.
• Describe U.S. Treasury tax policy and debt management responsibilities.
• Discuss how the expansion of the money supply takes place in the U.S. banking system.
• Briefly summarize the factors that affect bank reserves.
• Explain the meaning of the monetary base and money multiplier.
• Explain what is meant by the velocity of money and give reasons why it is important to control the money supply.

Where We Have Been...

In Chapter 4, we discussed the role of the Federal Reserve System (Fed) as the central bank in the U.S. banking system. Money must be easily transferred, checks must be processed and cleared, banks must be regulated and supervised, and the money supply must be controlled. ...