The government has discretion to change the quantity

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The government has discretion to change the  quantity of money (see Zimbabwe) M1 and M2 o M1  Currency Checkable Deposits o M2 M1 Savings deposits Small time deposits Retail money funds o M = Currency + Deposits M: Money; the flow of money in the economy Hard to control the money supply because of the ability to  influence deposits Banks o 2 macroeconomic roles Middlemen in loan market Channel of monetary policy o Balance sheet Assets Reserves Loans U.S. treasury securities Other assets (buildings, computers, etc.) Liabilities and Owner’s Equity Deposits Borrowings
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Owner’s equity o Reserves Vault cash or deposits at the central bank (Fed) Fractional reserve banking system The system works fine until Bank run   people run to the bank and pull out  their deposits for fear of not being able to get their  money back later  Solution:
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