The Federal Reserve's ability to control the amount of demand deposits in the system depends on its ability to

Question

Quizplus · Accepted Answer

The Federal Reserve's ability to control the amount of demand deposits in the system is primarily dependent on its ability to regulate bank reserves, which are the funds that banks must keep on hand to meet withdrawal demands from their customers. By adjusting reserve requirements and the discount rate, the Federal Reserve can influence the amount of money that banks are able to lend and the overall level of demand deposits in the system. While clearing checks and printing currency are also important functions of the Federal Reserve, they are not directly related to its control over demand deposits. Chartering national banks is the responsibility of the Office of the Comptroller of the Currency, not the Federal Reserve.

The Federal Reserve's Ability to Control the Amount of Demand