Bank lending and deposits tend to change as interest rates change.Can the Fed counteract this tendency?
A)Yes, through its ability to affect the money supply.
B)Yes, through its ability to change tax levels.
C)No, the Fed is forbidden by the Constitution from intervening in the economy.
D)No, the Fed almost always follows a passive monetary policy.

Question

Quizplus · Accepted Answer

The Fed can counteract the tendency of bank lending and deposits to change as interest rates change by adjusting the money supply through its monetary policy tools such as open market operations, reserve requirements, and the discount rate. By increasing or decreasing the money supply, the Fed can influence interest rates and affect the behavior of banks and borrowers.

Bank Lending and Deposits Tend to Change as Interest Rates