Chapter 17, Problem 1LO

To determine

The “three players” that influence the money supply

Explanation of Solution

The three players in the Money Supply Process are

1. The Federal Reserve: For determination of the monetary policy of the nation, the Fed controls the money supply to affect the macro economy. When the Fed increases the money supply in the economy, the monetary policy set by the Fed iscalled expansionary. This encourages investment and thereby increases consumption demand. In the long run, an expansionary policy may lead to higher prices and inflation. Hence, it is the Fed's responsibility to maintain a proper balance and prevent the economy from both hyperinflation and recession. FED is the Central bank of United States of America.

Central Banks: The government agency that oversees the banking system and isresponsible for the conduct of monetary policy.

2. Banks affect the quantity of money in circulation by buying or selling government securities through open market operations. the financial intermediaries that accept deposits from individuals and institutions and make loans.
3. Depositors or the Institutions: Depositors or the institutions are those who make deposits with the bank. The depositor is basically the lender of the money and the bank is responsible for returning the deposited money at the end of the period of deposit.

Economics Concept Introduction

Introduction:

The three Players that influence the money supply are:

1. The Federal Reserve / Central Banks
2. Banks
3. Depositors