reserve requirements and lowering bank expected to add to de- d. during interest rates, was to inflationary peri the government was supp tighten the supply of money by reserve requirements and increas- ing interest rates. increasing bank the Thus, by increasing or decreasing the overall supply of money. government could "fine-tune" the economy The independent Federal Reserve Board. commonly called-the Fed," can nd or contract the money supply oversight of the operation of banks participating through its Fed is headed by a seven-person in the Federal Reserve system. The board of governors, appointed by the president for overlapping terms years. controlling the amount of money banks can lend, the Fed can regulate the money supply and i interest rates. However, monetarist economic theory contends that economic stability can be achieved only by holding the rate of monetary growth to the same rate as the omy itself. Led by the Nobel Prize-winning Milton effectively influence challenge the view that manipulating the money supply can of ac economic activity. They argue that over run real income is a function cre economic output. Increasing the supply of money faster than output only buy ates inflation. The value of each dollar declines because there is more money to can the same amount of goods. Government manipulation of the money supply only produce short-term economic effects. Monetarists believe that high interest rates are a product of investors' fears of continued inflation. As soon as investors come to believe that the Fed will stick to noninflationary policies, interest rates will come down. In short, monetarists believe that government tinkering with the money supply is the problem, not the solution