A problem that the Fed faces when it attempts to control the money supply is that
A)the 100-percent-reserve banking system in the United States makes it difficult for the Fed to carry out its monetary policy.
B)the Fed has to get the approval of the U.S.Treasury Department whenever it uses any of its monetary policy tools.
C)the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount.
D)the Fed does not control the amount of money that households choose to hold as deposits in banks.

Question

Quizplus · Accepted Answer

The Fed faces the challenge of not controlling the amount of money households decide to hold as deposits in banks, which affects the money supply indirectly since the banking system can create money through the lending process based on deposits.

A Problem That the Fed Faces When It Attempts to Control