Chapter 15, Problem 15AA

To determine

To explain:The reason for critics think Fed should not indulge itself in manipulation of the money supply.

Explanation of Solution

Federal Reserve is the main body that regulates the money supply in an economy by applying various monetary policies. However, these policies of Fed have been criticized time to time. This is because at times where there was high inflation, Fed increased amount of circulating money in the economy that worsened the situation of inflation. It was also seen that at times where the economy had slowed down, Fed decreased the money supply which made the situation worse.

To avoid these kind of mis adjustments, critics believe that the Fed should not involve itself in manipulation of money supply rather it should increase the money supply at a defined rate every year.

Economics Concept Introduction

Introduction:

Regulating the money supply- It is the primary responsibility of the Federal Reserve to regulate the supply of money in the economy. To regulate the money supply in the economy Fed applies various monetary and fiscal policies.