Question

Which statement concerning the market for money is TRUE?

	A.	The Federal Reserve can increase/decrease the demand for money with its monetary policies.
	B.	The Federal Reserve can increase/decrease the supply of money with its monetary policies.
	C.	The Federal Reserve has no influence on the market for money.
	D.	The Federal Reserve can increase/decrease both the demand and supply of money with its monetary policies.
	E.	The President and Congress can increase/decrease the supply of money with its fiscal policies

Answer 1

Ans: The correct statement is:

B.	The Federal Reserve can increase/decrease the supply of money with its monetary policies.

This is because the Federal Reserve is the supreme authority which supplies the money. It can control the supply of money but cannot control the demand for money because the money is demanded by the public in the country. Also, the President and Congress have control over fiscal policy (related to government expenditure and taxation) and not on monetary policy. The monetary policy is set by Federal Reserve (related to money supply in the country). The Federal Reserve can control the money supply by using various tools like Cash reserve Ratio, Federal Fund Rate, Discount Rate, Open market operations, etc.