Chapter objectives ■Money supply how the banking system "creates"money three ways the Fed can control the money supply why the Fed can't control it precisely Theories of money demand a portfolio theory -a transactions theory:the Baumol-Tobin model CHAPTER 18 Money Supply and Money Demand slide 1CHAPTER 18 Money Supply and Money Demand slide 1 Chapter objectives ▪ Money supply – how the banking system “creates” money – three ways the Fed can control the money supply – why the Fed can’t control it precisely ▪ Theories of money demand – a portfolio theory – a transactions theory: the Baumol-Tobin model