Which of the following statements is true?
A) The Fed has the power to dictate the amount of deposits held with commercial banks.
B) The rate of inflation in the long run is equal to the rate of growth of real GDP minus the rate of growth of money supply.
C) The Fed can influence the money supply in the economy by influencing the required amount of reserves.
D) The Fed can reduce the growth of money supply by increasing growth in bank reserves.

Question

Quizplus · Accepted Answer

The Federal Reserve (Fed) influences the money supply primarily through its control over the reserve requirements for banks, which dictates the amount of funds that banks must hold in reserve against deposits. By adjusting these requirements, the Fed can directly influence the amount of money that banks can lend out, thereby affecting the overall money supply in the economy.

Which of the Following Statements Is True