Economic Assignment

The central purpose of this chapter is to introduce three basic macroeconomic relationships that will help us organize our thinking about macroeconomic theories and controversies:  First, the focus is on the income-consumption and income-saving relationships. Second, the relationship between the interest rate and investment is examined.  Finally, the multiplier concept is developed, relating changes in spending to changes in output.

 Briefly describe the multiplier effect.  The multiplier effect is based on two facts – what are they?


How is the chairperson of the Federal Reserve Board selected?  Describe the relationship between the Board of Governors of the Federal Reserve System and the 12 Federal Reserve Banks.  What are the composition and purpose of the Federal Open Market Committee (FOMC)?


In this chapter the authors first cover the nature and function of money and then discuss the Federal Reserve System’s definition of the money supply.  Next, the chapter addresses the question of what “backs” money by looking at the value of money, and prices, and the management of the money supply.  Finally, there is a rather comprehensive description of the U.S. financial system, which focuses on the features and functions of the Federal Reserve System and recent developments in the U.S. financial system, including the growth of electronic payments.

 After you have a chance to read the chapter, I look forward to hearing from you on what interested you the most?


The central topic of this chapter is the creation of checkable (demand) deposit money by commercial banks.  First, a number of routine but significant introductory transactions are covered, followed by an assessment of the lending ability of a single commercial bank.  Second, the lending ability and the money multiplier of the commercial banking system are traced through the balance statements of individual banks



What do you know about monetary policy?  What else does your chapter say about expansionary and restrictive monetary policy?

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