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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

Why can’t the Fed control the money supply perfectly?

To determine

Why the Fed cannot control the money supply perfectly.

Explanation

The Federal Reserve is the central bank of the US economy, and it is usually known as the Fed. The Fed has the responsibility to keep the economy controlled from fluctuations, and it has to control the money supply of the economy through its monetary policies. The controlling of the money supply is one of the primary responsibilities of the Fed.

However, it is to be noted that the Fed cannot control the money supply perfectly through its tools of reserve requirements, discount rates, interest rates, and open market operations. The Fed is unable to control the money supply perfectly because of various reasons and some of them are as follows:

  1. 1. The Fed does not control the money that the households choose to hold as deposits in the banks and choose to keep it with them...

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