The Federal Reserve cannot target both the money supply and the interest rate because it does not control
A)bank reserves.
B)money demand.
C)the discount rate.
D)open market operations.

Question

Quizplus · Accepted Answer

The Federal Reserve can control the money supply through open market operations, but it cannot control money demand. Similarly, the discount rate is determined by the Fed, but it is not a direct control over the money supply or interest rates. Bank reserves are also controlled by the Fed and affect the money supply, but they do not determine interest rates. Therefore, the best choice is B, as it identifies a factor outside of the Fed's control that affects their ability to target both the money supply and interest rates.

The Federal Reserve Cannot Target Both the Money Supply and the Interest