   Banking, Central Banking System, Deflation, Inflation,
Supply, Tools of the Federal Reserve     • Define inflation and
explain the role that the quantity of money plays in inflation
rates.   • Explain the purpose of the reserve requirement.   •
Calculate the money multiplier.   • Calculate the potential
money creation from a deposit, given the multiplier.   •
Evaluate what the Federal Reserve should do to the reserve
requirement to correct inflation or recession.   coinsIn
Yugoslavia “between October 1, 1993 and January 24, 1995 prices
increased by 5 quadrillion percent. This number is a 5 with 15
zeroes after it.” (Thayer Watkins, Professor of Economics at San
Jose State University).  The uncontrolled creation of money
causes a quick decrease in the value of currency and very rapid
hyperinflation (in annual price increases of hundreds or
thousands of percent), which can destroy an economy. The United
States central bank--the Federal Reserve--can protect against
such a calamity by controlling the supply of