Final answer:
The Federal Reserve uses various methods to impact the money supply but doesn't have complete control over its expansion due to factors like banks retaining excess reserves and a cautious borrowing climate during a recession. Additional depository institutions such as savings and loan associations and credit unions also play a role in the monetary system.
Step-by-step explanation:
The Federal Reserve (Fed), through its monetary policy, influences the expansion of the monetary base to manage the economy. The Fed uses various methods to adjust the money supply, such as open market operations, adjusting the reserve requirement, and setting the discount rate.
However, the Fed does not have complete control over the monetary expansion because of factors like banks holding excess reserves or a hesitant business and consumer borrowing environment.
Restrictions on the Fed's Control
During economic downturns, banks may increase their excess reserves, reducing the efficacy of expansionary monetary policy. Moreover, when businesses and consumers are reluctant to take on debt during a recession, the capacity of the Fed to stimulate the economy is further hindered.
Therefore, while the Fed can guide the economy, it does not have absolute control over monetary expansion, as economic conditions and fiscal policies also play significant roles.
Other depository institutions besides banks include savings and loan associations and credit unions. These institutions differ from banks in their membership structure, benefits offered, and the specific services they provide, though they all participate in the economy's money supply process.