Because the Fed's ability to use DNFD in the implementation of monetary policy is _______, the Fed's control over DNFD is ______ precise than its control over the monetary aggregates.
A)severely limited, less
B)severely limited, more
C)extensive, less
D)extensive, more

Question

Quizplus · Accepted Answer

DNFD (direct nonborrowed reserves) are affected by factors outside of the Fed's control, such as changes in the Treasury's cash balance. This severely limits the Fed's ability to use DNFD in the implementation of monetary policy. Therefore, the Fed's control over DNFD is less precise than its control over the monetary aggregates.

Because the Fed's Ability to Use DNFD in the Implementation