Money Supply Is Linked to the Monetary Base by the Money

question 29

Essay

Money supply is linked to the monetary base by the money multiplier. Macroeconomic textbooks tell you that the central bank cannot control the money supply, but it can control the monetary base. As a result, you decide to specify a distributed lag equation of the growth in the money supply on the growth in the monetary base. One of your peers tells you that this is not a good idea for modeling the relationship between the two variables. What does she mean?

---

Definitions:

Abraham Maslow

An American psychologist best known for creating Maslow's hierarchy of needs, a theory in psychology that ranks human needs in the order of their importance for personal development.

Functional Autonomy

A principle in psychology where behaviors and habits, initially formed in response to a particular need, persist even after the original motive has ceased.

Emotionally Healthy Adults

Individuals who exhibit emotional stability, resilience, and the capacity to develop positive relationships.

Biologically Dominated Organism

An organism whose features and behaviors are primarily determined by biological rather than environmental factors.