Back to top

Chapter Two: How Is The Money Supply Controlled?


Published: July 2, 2019

As the central bank of the United States, the Federal Reserve controls monetary policy by targeting interest rates and influencing the money supply. By raising the federal funds rate, it changes decisions by individuals and banks of how much currency to keep and how many deposits are held at banks.

Video Recorded: August 20, 2018

Discussion Questions

  1. What makes monetary policy important?
  2. How does monetary policy relate to politics?
  3. What are the cost and benefits to society of central bank independence? 

Additional Readings

  • Read “Monetary Policy Rules Work and Discretion Doesn’t: A Tale of Two Eras” by John Taylor. Available here.
  • Read “The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong” by John Taylor. Available here.