Question

Which of the following is not a correct statement about the Federal Reserve banks?

a) They provide the economy with paper currency.
b) They act as a fiscal agent to the federal government.
c) They control the banking policies of commercial banks.
d) They set interest rates on commercial banks' loans.
e) They hold reserve deposits of member banks.

Answer 1

The incorrect statement about the Federal Reserve banks is that they set interest rates on commercial banks' loans; the Fed influences rates but does not set individual loan rates for banks' customers.

Step-by-step explanation:

The question asks which statement about the Federal Reserve banks is not correct. The incorrect statement is d) They set interest rates on commercial banks' loans. The Federal Reserve influences the economy by conducting monetary policy, providing banking services to commercial banks and to the federal government, and holding reserve deposits of member banks. It does manage conditions that affect interest rates through tools like open market operations, changing reserve requirements, and changing the discount rate. However, it does not set the specific interest rates on the loans that commercial banks offer to their customers. Commercial banks determine their own lending rates, although these are influenced by the Federal Reserve's policies.