Question

The federal reserve's control over the amount of government securities it buys or sells is _______ than its control over discount window lending. This is because the fed has complete control over _______.

1) less, the interest rates
2) more, the interest rates
3) less, the money supply
4) more, the money supply

Answer 1

The Federal Reserve has less control over the money supply through its control over government securities, but has more control over interest rates through its control over discount window lending.

Step-by-step explanation:

The Federal Reserve's Control over Government Securities and Discount Window Lending

The Federal Reserve has more control over the amount of government securities it buys or sells compared to its control over discount window lending.

1) Less, the interest rates: The Federal Reserve has less control over interest rates through its control over government securities. While buying or selling government securities affects interest rates, the Federal Reserve has more direct control over interest rates through its discount window lending.

2) More, the interest rates: This option is incorrect because the Federal Reserve has less control over interest rates through its control over government securities.

3) Less, the money supply: The correct answer is that the Federal Reserve has less control over the money supply through its control over government securities. While open market operations influence the money supply, the Federal Reserve has more precise and powerful control over the money supply through its discount window lending.

4) More, the money supply: This option is incorrect because the Federal Reserve has less control over the money supply through its control over government securities.