Question

The Fed has no direct control over which of the following factors that affect the money supply?

a) The discount rate
b) Open market operations
c) The deposit expansion multiplier
d) Required reserves
e) The federal funds rate

Answer 1

The Fed has direct control over the discount rate, open market operations, and reserve requirements but does not have direct control over the deposit expansion multiplier, which is determined by behaviours of banks and the public.

Step-by-step explanation:

The Federal Reserve (Fed) has direct control over several factors that affect the money supply, including the discount rate, open market operations, and reserve requirements. Both the discount rate and required reserves are controlled by the Fed while open market operations are a primary tool used by the Fed to execute monetary policy. However, the Fed does not have direct control over the deposit expansion multiplier, which is the factor affecting the money supply that the Fed cannot directly control. This multiplier is largely determined by the behavior of banks and the public, as it represents a multiple of the total amount of reserves in the banking system that can be lent out, influenced by the reserve requirement ratio and other financial factors.