Question

In the context of monetary policy, which of the following statements is true of commercial banks?

A) They control the money supply
B) They implement fiscal policies
C) They are regulated by the Federal Reserve
D) They have no role in the economy

Answer 1

Commercial banks are regulated by the Federal Reserve and play a critical role in the economy but do not control the money supply or implement fiscal policies. The Federal Reserve uses tools like open market operations and reserve requirements to conduct monetary policy.

Step-by-step explanation:

In the context of monetary policy, the correct statement about commercial banks is that they are regulated by the Federal Reserve. Commercial banks play an instrumental role in the economy and the monetary system but do not directly control the money supply, nor do they implement fiscal policies. The Federal Reserve regulates the nation's banking system to ensure stability and oversees the execution of monetary policy by employing tools such as open market operations, changing reserve requirements, and changing the discount rate to manage the economy's money supply and credit conditions.