The phrase “printing money” tends to be tossed around in discussions about the money supply. How important is cash to the overall money supply? In our system the Federal Reserve Board has at least some control over the money supply. How are they related to the Federal government? Recently the FRB has been pushing up interest rates. Why?
The money supply is very important because it is all the physical cash circulating throughout the nation, plus the money held in checking and saving accounts. There are two ways that The Fed measures money supply: M1 and M2. A basic economy theory teaches that an increase in the money supply leads to higher prices. Federal fund rates is used to attempt to control inflation. By increasing the federal funds, the Fed basically attempts to shrink the money supply available to make purchases, therefore, making money more expensive to obtain.
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