By changing its regulations, the Fed ___ force the banking system to reduce the money supply; by changing its regulations, the Fed ____ force the banking system to increase the money supply:
A)Can; can
B)Can; cannot
C)Cannot; can
D)Cannot; cannot.

Question

By changing its regulations, the Fed ___ force the banking system to reduce the money supply; by changing its regulations, the Fed ____ force the banking system to increase the money supply:
A)​Can; can
B)​Can; cannot
C)​Cannot; can
D)​Cannot; cannot.

Quizplus · Accepted Answer

The Fed can change its regulations to force the banking system to reduce the money supply, but it cannot force the banking system to increase the money supply. Increasing the money supply requires the banks to lend out more money, which is their own decision based on the demand for loans and their lending standards. Therefore, the correct answer is that the Fed can force the banking system to reduce the money supply by changing its regulations, but it cannot force the banking system to increase the money supply.

By Changing Its Regulations, the Fed ___ Force the Banking