In many ways, the Federal Reserve does not control the level of interest rates nor the money supply. Rather, this is controlled by the actions of individual banks throughout the economy.

In many ways, the Federal Reserve does not control the level of interest rates nor the money supply. Rather, this is controlled by the actions of individual banks throughout the economy. “Explain the rationale behind this statement. What action is required by the banks for Federal Reserve policy to be effective in stimulating the economy? What can the banks do to negate a Fed stimulus?

DQ2 In 2014, short-term interest rates were near zero, and yet the economy was still sluggish with low rates of economic growth and relatively high unemployment. What monetary policies should be pursued in such an environment? How might they work?