ECONOMICS
MONEY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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control the amount of money in circulation
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control the Federal Government’s debt
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control state governments’ spending
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none of these answers are correct.
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Detailed explanation-1: -Monetary policy in the United States comprises the Federal Reserve’s actions and communications to promote maximum employment, stable prices, and moderate long-term interest rates–the economic goals the Congress has instructed the Federal Reserve to pursue.
Detailed explanation-2: -The Fed controls the supply of money by increas-ing or decreasing the monetary base. The monetary base is related to the size of the Fed’s balance sheet; specifically, it is currency in circulation plus the deposit balances that depository institutions hold with the Federal Reserve.
Detailed explanation-3: -This so-called quantitative easing increases the size of the central bank’s balance sheet and injects new cash into the economy. Banks get additional reserves (the deposits they maintain at the central bank) and the money supply grows.
Detailed explanation-4: -The Fed can increase the money supply by lowering the reserve requirements for banks, which allows them to lend more money. Conversely, by raising the banks’ reserve requirements, the Fed can decrease the size of the money supply.