The goals are numerous, but the Fed's capabilities are limited to the simple menu of (1) trying to raise the rate of growth in the money supply by providing more reserves to banks, and (2) trying to reduce the rate of monetary expansion by reducing the reserves in the banking system.

Question

Quizplus · Accepted Answer

The statement accurately describes the limited capabilities of the Federal Reserve in terms of their ability to influence the money supply through the manipulation of bank reserves. The Fed can either increase or decrease reserves to encourage or discourage banks from lending and thus impact the growth rate of the money supply. However, the Fed cannot directly control the money supply or achieve other specific economic goals such as full employment or balanced growth.

The Goals Are Numerous, but the Fed's Capabilities Are Limited