When a check clears, money created by the Federal Reserve System is transferred from one bank to another, unless both parties have accounts at the same bank. This fact explains why the M1 money supply can't exceed the amount of money created by the Federal Reserve System. the money supply would be larger if there was only one commercial bank. the Fed has a good deal of control over the U.S. money supply, even though most of the money is created by private banks. the Fed's check-clearing activities may contribute to inflation.

When a check clears, money created by the Federal Reserve System is transferred from one bank to another, unless both parties have accounts at the same bank. This fact explains why the M1 money supply can't exceed the amount of money created by the Federal Reserve System. the money supply would be larger if there was only one commercial bank. the Fed has a good deal of control over the U.S. money supply, even though most of the money is created by private banks. the Fed's check-clearing activities may contribute to inflation.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter12: Money And The Banking System

Section: Chapter Questions

Problem 3DQ

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