The size of monetary base is determined by:
A) the Federal Reserve.
B) the Federal Reserve and banks.
C) preferences of households about the form of money they wish to hold.
D) business policies of banks and the laws regulating banks.

Question

Quizplus · Accepted Answer

The monetary base is controlled by the Federal Reserve through their open market operations, which involve buying and selling government securities to influence the amount of reserves in the banking system. Banks can influence the size of the monetary base indirectly through their actions, but ultimately it is determined by the actions of the Federal Reserve. Preferences of households and business policies of banks may affect the demand for money and the behavior of banks, but they do not directly determine the size of the monetary base.

The Size of Monetary Base Is Determined By