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Chapter 14 The Money Supply Process

Chapter Objectives

By the end of this chapter, students should be able to:

  1. Describe who determines the money supply.
  2. Explain how the central bank’s balance sheet differs from the balance sheets of commercial banks and other depository institutions.
  3. Define the monetary base and explain its importance.
  4. Define open market operations and explain how they affect the monetary base.
  5. Describe the multiple deposit creation process.
  6. Define the simple deposit multiplier and explain its information content.
  7. List and explain the two major limitations or assumptions of the simple deposit multiplier.