# Relationship Between Money Supply and Bank Reserves Summary::Explain the relationship between the Money Supply and Bank Reserves. >I need to figure a way to break the note into "atomic" pieces. Also, I need to update the images included in this presentation > # Introduction The fact that we perpetuate false or inaccurate theories causes at least one problem for understanding money and its role. For years economic classes have taught that the Federal Reserve **_controls_** the supply of money. When they buy government bonds from banks, they pump reserves into the banks’ reserve accounts, and that addition to reserves somehow causes an expansion in the supply of money. We continue to talk in these terms even though (thanks to Ben Bernanke) we now have evidence that that might not be the case. And possibly never was the case. # Body # Contradiction ![[Money Supply and Bank Reserves#Contradiction]] # An Apparent Connection ![[Money Supply and Bank Reserves#An Apparent Connection]] # Sign of Broken Connection ![[Money Supply and Bank Reserves#Sign of Broken Connection]] # A Break From the Theory ![[Money Supply and Bank Reserves#A Break From the Theory]] # Conclusion ![[Money Supply and Bank Reserves#Conclusion]] # Footnotes: 1. I divided the _Reserve Balances Required_, which were stated in millions of dollars, by 1000 to convert the quantities into billions of dollars, making the figures uniformly comparable between total reserves and required reserves. 2. The Federal Reserve Economic Data (FRED) site at the St. Louis reserve bank generated all the charts used in this article. # Addendum ![[Money Supply and Bank Reserves Compared]] # References