Less control over the composition of the monetary base

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Reference no: EM131621947

"The Fed can perfectly control the amount of the monetary base, but has less control over the composition of the monetary base." Is this statement true, false, or uncertain? Explain your answer.

A. True. Because the Fed can alter the monetary base through its open market operations, it effectively gives the Fed perfect control of the monetary base.

B. False. Since the Fed cannot control the amount of discount lending to financial institutions, it does not have perfect control over the amount of reserves in the banking system and hence the monetary base.

C. True. By controlling the discount rate, the Fed is able to accurately predict banks' borrowings from the Fed, which allows the Fed to control the amount of reserves in the banking system and hence the monetary base.

D. Uncertain. Perfect control of the monetary base is only guaranteed if MB Subscript nMBn = MB minus− BR.

Reference no: EM131621947

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