Abstract
The recent procedure implemented by the Federal Reserve Board to control the money supply is formulated in the form of a tracking model as used in the study of manual-control tasks. Using this model, an analysis is made to determine the effect of monetary control on the fluctuations in economic output. The results indicate that monetary control can reduce the amplitude of fluctuations at frequencies near the region of historic business cycles. However, with significant time lags in the control loop, monetary control tends to increase the amplitude of the fluctuations at the higher frequencies. The study outlines how the investigator or student can use the tools developed in the field of manual-control analysis to study the nature of economic fluctuations and to examine different strategies for stabilization.
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