Monetary Policy within the IS-LM Framework

The majority of economists would admit that

money is powerful and that changes in money

will impact the economy. Monetary theory analyzes

and determines how changes in the supply

of money affect the economy.

This book details the collection of policies

that use monetary tools known as monetary

policy. For example, the main monetary authority

of a country is its central bank. In the United

States it is called the Federal Reserve Bank System

(Fed), which is a federation of 12 Federal

Reserve Banks. The Fed is responsible for initiating

printing of money, monitoring the interest

rate, and controlling the supply of money in

the economy. Monetary authorities are shielded

from executive branch interference by serving

14-year terms. This allows them to act without

worrying about political fallout or fear of losing

their jobs. The ability to work and function

independently from political pressure has been

used to claim that the supply of money is exogenous.

Inside this authoritative text, the author

gives real insight to the IS-LM Framework

(Investment Saving-Liquidity Preference Money

Supply) and the effects on our economy.