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Ch 12: Central Bank and the Money Supply

About This Chapter

Watch video lessons about the central bank and the money supply to gain insight into some very important economic concepts. Take the quizzes that follow each lesson to test your knowledge of the central bank and the money supply.

Central Bank and the Money Supply

U.S. citizens with even a small amount of economic savvy have probably heard of the Federal Reserve. But do you know why 'the Fed', as it's known colloquially, exists? Do you know what it does? In this set of lessons, you'll learn about things like the reserve requirement and how the Federal Reserve can impact interest rates and other economic factors, like the money supply.

These lessons explore a lot of complex economic issues that can have a serious impact on our national and personal financial health. Some of these issues might be things you aren't really aware of, like how private investment can be inversely proportional to interest rates or how the money supply is connected to rising prices. You'll also be able to learn how interest rates and prices are connected.

Other topics covered in these lessons include the ways a central bank can affect interest rates by purchasing or selling government securities. Do you even know what government securities are? If not, you're definitely not alone. But learning about this and other things that impact our economy is a great idea. These video lessons should help clarify some of the concepts you hear about in news reports about the economy.

This chapter is led by instructors who are knowledgeable in this field. In addition to video lessons, the chapter includes short, multiple-choice quizzes that allow you to gauge your knowledge of central banks and the money supply.

11 Lessons in Chapter 12: Central Bank and the Money Supply
What is the Federal Reserve System?

1. What is the Federal Reserve System?

Have you ever wondered why interest rates go up and down, seemingly at random? Of course you have! Discover what the Federal Reserve is, what its goals are and how those goals are achieved in this introductory lesson explaining the central bank of the United States.

Reserve Requirement, Open Market Operations and the Discount Rate

2. Reserve Requirement, Open Market Operations and the Discount Rate

This lesson outlines the three main tools used by the central bank to conduct monetary policy, including open market operations, required reserves and the discount rate.

Open Market Operations & the Federal Reserve: Definition & Examples

3. Open Market Operations & the Federal Reserve: Definition & Examples

This lesson explains the most frequently used monetary policy tool of the central bank, open market operations. Using examples, you'll go inside the formula of the money multiplier and see how the Federal Reserve effectively controls the interest rate of the economy.

How the Reserve Ratio Affects the Money Supply

4. How the Reserve Ratio Affects the Money Supply

Where does our supply of money come from. Well, it's in the hands of the Federal Reserve. In this lesson, discover how the central bank can dramatically alter the supply of money in the economy by changing the reserve requirements of the banks it oversees.

The Discount Rate & Monetary Policy: How Banks Can Borrow Money from the Federal Reserve

5. The Discount Rate & Monetary Policy: How Banks Can Borrow Money from the Federal Reserve

Learn more about the discount rate, which is the rate that banks pay to the central bank when borrowing money. This lesson explains how changes in the discount rate affect the money supply and how the central bank can use the discount rate as part of monetary policy.

How the Federal Reserve Changes the Money Supply and Affects Interest Rates

6. How the Federal Reserve Changes the Money Supply and Affects Interest Rates

Discover the connection between the money supply and economic output and how the central bank's tools lead to an increase or decrease in real GDP via expansionary and contractionary monetary policy.

Quantity Theory of Money: Output and Prices

7. Quantity Theory of Money: Output and Prices

This lesson explains the quantity theory of money and how to apply it, including the idea that an increase in the money supply leads to inflation in the long run.

The Velocity of Money: Definition and Circulation Speed

8. The Velocity of Money: Definition and Circulation Speed

Learn about the method economists use to measure how fast money changes hands throughout the economy, referred to as the velocity of money. With the help of an imaginative story, this lesson defines the concept of velocity as well as what determines it.

Real vs. Nominal Interest Rates and Changes in Prices

9. Real vs. Nominal Interest Rates and Changes in Prices

This lesson explains the important difference between nominal and real interest rates and provides examples of how to use the Fisher equation to adjust nominal rates for inflation.

Private Investment and Real Interest Rates

10. Private Investment and Real Interest Rates

When you borrow money, where does that money come from and why is it available? In this lesson, you'll learn about the market for loanable funds, where savers deposit money and entrepreneurs borrow money to finance private investment.

Hyperinflation, Money Supply and the Consumer Price Index

11. Hyperinflation, Money Supply and the Consumer Price Index

Is there such a thing as too much money? Maybe. What happens when inflation is excessive? This lesson explores what hyperinflation is and how it is connected with the money supply.

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