Which of the following aspects of the economy are directly controlled by the Federal Reserve (the Fed)?

• A. Tax rates
• B. The unemployment rate
• C. Government spending
• D. The money supply

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the role of the Federal Reserve (the Fed) in the economy. The Fed primarily manages monetary policy, which involves controlling the money supply and interest rates to influence economic activity.
2. Step 2: Identify what the Fed does not control directly. Tax rates and government spending are fiscal policy tools, which are determined by the government (Congress and the President), not the Fed.
3. Step 3: Recognize that the unemployment rate is an economic outcome influenced by many factors, including monetary and fiscal policy, but it is not directly controlled by the Fed.
4. Step 4: Focus on the money supply, which the Fed controls through mechanisms such as open market operations, setting reserve requirements, and adjusting the discount rate.
5. Step 5: Conclude that among the options given, the money supply is the aspect directly controlled by the Federal Reserve.