CHAPTER 8
Who Controls the Money Supply and How?
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Exhibit 8-1
M2 Money Supply ≡ M2 Money Multiplier × Monetary
Base
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Exhibit 8-2
Framework for Conceptualizing Causes of Monetary
Base Changes
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Exhibit 8-3
What Causes Changes in the Monetary Base?
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Exhibit 8-4
What Causes the Monetary Base to Increase?
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Exhibit 8-5
Assets a Central Bank Could Purchase to Increase the
Monetary Base
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Exhibit 8-6
Assets Purchased by Central Banks
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Exhibit 8-7
Sources of Money Supply Changes
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Exhibit 8-8
Effects of Different Reserve Requirements
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Exhibit M8-1
Effects of a $10 Million Withdrawal from a Bank with
No Excess Reserves
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Exhibit 8-9
Monetary Effects of Open Market Operations
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Exhibit 8-10
Dominant Type of Open Market Operations and
Securities that Central Banks Purchase Outright or Use
for Repurchase Agreements: 2002
Source: Richard W. Kopcke, "The Practice of Banking in Other Industrialized Countries,’’ New England
Economic Review, Second Quarter 2002, 6. Also available online at
(accessed September 11, 2006).
*CG means central government.
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Exhibit 8-11
Monetary Effects of Foreign Exchange
Market Intervention
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Exhibit 8-12
Monetary Effects of Discount Rate and Discount Loan
Changes
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Exhibit 8-13
Standing Facilities at the Central Banks of Major
Industrial Nations: 2002
Source: Richard W. Kopcke, ‘‘The Practice of Banking in Other Industrialized Countries,’’ New England
Economic Review, Second Quarter 2002, 6. Also available online at />neer/neer2002/neer202a.pdf (accessed September 11, 2006).
*MC means market ceiling. It is the rate the central bank charges on a fixed-term loan. MF means market floor.
It is the deposit rate given on bank deposits at the central bank.
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Exhibit 8-14
Stock Market Prices of Seven Blue Chip U.S. Companies,
1929 and 1932
Sources: AT&T Historic Stock Data, (accessed June 5, 2006); The Wall Street Journal,
‘‘New York Stock Exchange Transactions,’’ September 4, 1929, 32 (accessed through ProQuest, June 5, 2006);
The Wall Street Journal, ‘‘New York Stock Exchange Transactions,’’ December 31, 1932, 32 (accessed through
ProQuest, June 5, 2006).
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Exhibit 8-15
Lags in Monetary Policy
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Exhibit 8-16
Major Monetary Tools of Central Banks and Their Effect
on the Money Multiplier or Monetary Base
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Exhibit A8-1
Major Accounts in a Central Bank Balance Sheet
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Exhibit A8-2
Composition of Industrialized Nations’ Central Bank
Assets: 2002
Source: Richard W. Kopcke, ‘‘The Practice of Banking in Other Industrialized Countries,’’ New England
Economic Review, Second Quarter 2002, 7. Also available online at />neer/neer2002/neer202a.pdf (accessed September 11, 2006).
Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved.
Exhibit A8-3
How Paper Currency Enters the Economy
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Exhibit A8-4
Cash Injections into the Economy Do Not
Change the Monetary Base
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U.S. Federal Reserve Note
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U.S. Federal Reserve Note
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Exhibit A8-5
Open Market Operations: Central Bank Purchases
Securities from Banks
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