Why does the Fed have imperfect control over the money supply?
A)Because the Fed does not know how much reserves will change when it buys or sells securities.
B)Because of unpredictable changes in the public's desire to hold cash and banks' desires to hold reserves.
C)Because of unpredictable changes in reserve requirements.
D)Because of the secrecy of FOMC meetings, which lead to policy surprises.

Question

Quizplus · Accepted Answer

The Fed has imperfect control over the money supply because of unpredictable changes in the public's desire to hold cash and banks' desires to hold reserves. This makes it difficult for the Fed to accurately predict and control the amount of money in the economy. Other factors, such as changes in reserve requirements, can also impact the effectiveness of the Fed's control over the money supply. However, the Fed does have tools and mechanisms in place to try and mitigate these uncertainties and maintain stable economic conditions.

Why Does the Fed Have Imperfect Control Over the Money