Essay Database

Money Supply In the economics we learned about the money supply. Initially we defined the money supply as the total amount of currency held by the public. While this definition is correct, it is incomplete. In the previous section, we learned that through a fractional reserve banking system, the money supply increases. Thus, the money supply is better defined as the total amount of currency plus deposit held by the public. All available money, either …

…If the Fed increases the federal funds interest rate, banks will be less likely to borrow money from the Fed and will thus be more weary of making loans to ensure that they have the necessary reserve requirements. Thus, if the federal funds interest rate is higher, banks make fewer loans, the money multiplier i! s not fully utilized, and the change in the money supply for a given initial deposit is smaller. ------------------------------------------------------------------------ **Bibliography**