In practice, money supply and short-term interest rates are determined by the
A) Treasury and Commerce departments.
B) Federal Open Market Committee.
C) Board of Governors.
D) House and Senate.

Question

Quizplus · Accepted Answer

The Federal Open Market Committee (FOMC) is responsible for controlling money supply and short-term interest rates in the United States. The FOMC achieves this by setting a target federal funds rate, which is the interest rate that banks charge each other for overnight loans. The FOMC uses various tools, such as open market operations, to influence the supply of reserves in the banking system and achieve its target rate. The Treasury and Commerce departments, Board of Governors, and House and Senate do not play a direct role in determining money supply and short-term interest rates.

In Practice, Money Supply and Short-Term Interest Rates Are Determined