Can anyone please shed some insight into this question: Money supply is fixed and is determined by the Fed. Isn’t this contradictory to the money multiplier effect, whereby the banks’ excess reserves can cause the money supply to grow? Thanks for any input.
It’s fixed until the Fed tinkers with it. You won’t get that mulitiplier effect unless the Fed says so.
Thanks Dreary!
Since fed also sets reserve requirements, it still holds that the supply is fixed by the Fed. Reality is that there’s a band of the actual supply due to the multiplier effect and people’s propensity to consume or save.
That’s correct, but the ultimate money supply is fixed. Checkyour understanding: what if the treasury department sells $10 billion t-bills, wouldn’t that change the money supply? So, is it always the Fed’s action that does?