The Fed Is Reluctant to Use Reserve Requirements to Control

question 114

Multiple Choice

The Fed is reluctant to use reserve requirements to control the money supply because

• A) of their overly-powerful impact on the money supply.
• B) they have the potential to create liquidity problems for banks with low excess reserves.
• C) frequent changes in reserve requirements complicate liquidity management for banks.
• D) of all of the above.
• E) of only A and B of the above.

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Definitions:

Finished Goods Account

The finished goods account is an inventory account that tracks the cost of manufactured goods or products that are completed and ready for sale.

Management Accounting

The field of accounting focused on providing financial data and analysis to managers within organizations to assist in decision-making.

External Users

Individuals or entities outside of a company who use its financial statements and other information to make decisions, such as investors or creditors.

Business Environment

The combination of external and internal factors that influence a company's operating situation, including economic, legal, and technological aspects.