The Fed affects aggregate demand through monetary policy by changing
A)tax rates on only interest income and so influencing disposable income.
B)government expenditure and so influencing the budget balance.
C)the quantity of reserves and determining government expenditure.
D)tax rates and influencing disposable income.
E)the federal funds rate and the quantity of reserves.

Question

Quizplus · Accepted Answer

The Fed's monetary policy affects aggregate demand through the manipulation of the federal funds rate and the quantity of reserves in the banking system. By adjusting the federal funds rate, the interest rate at which banks borrow and lend reserves, the Fed can influence borrowing, spending, and investment behavior by altering the cost and availability of credit. In addition, the Fed can indirectly affect the quantity of reserves in the banking system through open market operations, such as buying or selling government securities, which can also impact interest rates and the availability of credit.

The Fed Affects Aggregate Demand Through Monetary Policy by Changing