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 U.S.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 can control the amount of reserves banks hold through various tools, but it cannot directly control how much money households choose to hold as deposits in banks. This means that the Fed's actions may not have the desired effect on the overall money supply if households change their behavior and hold more or less money in banks than expected.

A Problem That the Fed Faces When It Attempts to Control