Fiscal policy makers may indirectly control the money supply if
A)they vote to "print" more dollars
B)the Fed targets interest rates
C)the Fed "prints" money as cyclical deficits increase
D)the budget deficit is a structural deficit

Question

Quizplus · Accepted Answer

The Federal Reserve controls the money supply through its monetary policy, which includes targeting interest rates. Fiscal policy, on the other hand, refers to government spending, taxation, and borrowing. While fiscal policy can indirectly affect the money supply, it cannot directly control it. Option A is incorrect because fiscal policy makers do not have the authority to print more dollars - this is the role of the Federal Reserve. Option C is partially correct, as increases in cyclical deficits may prompt the Fed to inject money into the economy through quantitative easing. However, this is a function of monetary policy, not fiscal policy. Option D is also incorrect, as the nature of the budget deficit (structural or cyclical) does not determine the extent of control fiscal policy makers have over the money supply.

Fiscal Policy Makers May Indirectly Control the Money Supply If