The Federal Reserve controls the Federal Funds rate through its control of:
A) the monetary base.
B) M1.
C) M2.
D) currency in circulation.

Question

Quizplus · Accepted Answer

The Federal Reserve controls the Federal Funds rate by controlling the monetary base, which is the total amount of currency circulating in the economy plus the reserves held by banks. By adjusting the monetary base, the Federal Reserve can influence short-term interest rates, including the Federal Funds rate. M1, M2, and currency in circulation are related to the money supply but do not directly affect the Federal Funds rate.

The Federal Reserve Controls the Federal Funds Rate Through Its