Question

A problem that the Fed faces when it attempts to control the money supply is that a. since the U.S. has a fractional-reserve banking system, the amount of money in the economy depends in part on the behavior of depositors and bankers. b. the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. c. while the Fed has the ability to change the money supply by a large amount, it doeuus not have the ability to change it by a small amount. d. federal legislation in the 1950s stripped the Fed of its power to act as a lender of last resort to banks

Answer 1

Solution

The correct answer is (a)

We know that the Federal reserve is also known as Fed ,is the apex bank of the United States of America. The fractional reserve banking system provides banks with enough liquid assets in order to satisfy the withdrawal by the customer