Review

Aggregative economic policy is designed to stabilize the general price level and the growth in output and employment. Monetary policy, as a gen­eral tool of aggregate demand management, seeks to achieve these goals by affecting the volume of total spending in the economy. Whether ultimate goals of this policy are achieved depends to a large extent upon the external shocks to which the economy is subjected. Regardless of the sources of these shocks - weather, foreign actions, or changes in institutional conditions - they must be taken into consideration in the process of monetary policy planning and execu­tion. One of the recent shocks has been the sudden and dramatic increase in the relative price of energy, which has significantly affected U.S. productive capacity. This article traces and analyzes the underlying factors which were instrumental in rendering the U.S. economy vulnerable to the energy shock.

The monetary base, as published by the Federal Reserve Bank of St. Louis, consists of member bank deposits at Federal Reserve Banks, vault cash held by member and nonmember banks, and currency held by the public plus and an adjustment referred to as the reserve adjustment magnitude (RAM). On the basis of an analysis of the purpose for which RAM is to be used and its historical behavior, it was decided to change the method by which RAM is computed. Consequently, monetary base has been revised to reflect the new method of computing RAM.