The Federal Reserve cannot always control the level of total spending in the economy using monetary policy because it cannot control

Question

Quizplus · Accepted Answer

The Federal Reserve can control the money supply and total reserves by altering interest rates and implementing open market operations. However, it cannot directly control the velocity of money, which is the rate at which money circulates in the economy. Factors such as consumer and business confidence, tax policies, and international trade can influence velocity, making it difficult for the Fed to control total spending through monetary policy alone. Total bank lending is also influenced by factors beyond the control of the Fed, such as borrower demand and creditworthiness.

The Federal Reserve Cannot Always Control the Level of Total