Since the United States has a fractional reserve banking system, the amount of money in the economy depends in part on the actions of depositors and bankers. This presents a challenge for the government when it tries to regulate the money supply.
Why is the money supply under control important?
- In addition to speeding up the process of economic growth, the expansion of the money supply is crucial for achieving price stability in the economy.
- If the goal of development with stability is to be accomplished, there must be a controlled expansion of the money supply.
- By increasing or decreasing the monetary base, the Fed can regulate the amount of money in circulation.
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