Chapter 26, Problem 2MCQ

To determine

The institution controls the monetary base.

Explanation of Solution

The total quantity of cash in the hands of the general people or the guise of commercial bank balances kept in the holdings of the central bank constitutes the monetary base. Since it does not include various types of non-currency money that are common in a modern economy, this estimate of the money supply is not frequently used.

Monetary policy is managed by a central bank. The base rate is determined by the central bank, which also sets reserve requirements for private banks, conducts open market operations to manage the money supply, and manages foreign currency reserves for the country. The central bank's primary goals are to preserve prices as well as economic stabilization.