Topic

Love them or hate them, but banks serve a critical role in the functioning of market economies. Last week, we began our discussion on the purpose of money. This week, we examine the role of banks and the entire banking system in creating "money".

We will review how bank deposits become loanable funds and lead to the creation of more money through the process of the simple deposit money multiplier. This particular phenomenon is critical in our understanding of how the Central Bank, or Federal Reserve, manages the money supply and ultimately interest rates.

Our discussions on money and the banking sector are simply stepping stones to our ultimate understanding on how monetary policy is implemented. We will review monetary policy toward the end of the week, as well as next week.

Objectives

By the end of this week, you will be able to:

Compare and contrast the potential economic policy options of the Federal Reserve System versus the economic policy options of the Legislative and Executive branches of government with respect to unemployment, inflation, and full employment.
Student will be able to analyze the role of money and banking in the influencing of aggregate economic performance.
Student will be able to differentiate between monetary and fiscal policies and their appropriate use in the influencing of aggregate economic performance.
Student will be able to compare and contrast various macro-economic theories of output, employment, and income.
Student will be able to explain the components of the money supply, how banks create money and how the Federal Reserve controls the money-creating powers of banks.

Weekly Schedule

Due date	Activity
	Read McConnell: Read through Money & Banking; The Federal Reserve and Monetary Policy
Refer to Schedule	Assignment: Relevant Problem Set Questions
Monday, 12/5	Quiz #10: Due by 9am.