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respond to this discussion The fractional reserve banking structure and its built-in multiplier effect make it hard for the Federal Reserve to accurately control the
respond to this discussion "The fractional reserve banking structure and its built-in multiplier effect make it hard for the Federal Reserve to accurately control the money supply. With this method, banks only have to hold on to a small portion of deposits as reserves. The rest can be loaned out. Through loans, banks can make new money, which then moves to other banks and is partly lent out again. This creates a multiplier effect that makes the original amount of money even bigger. There is also a chance that savings will be taken out of banks during times of financial panic or instability, which could make the money supply less stable. If many customers take out their money at the same time, banks may have to call back loans or sell off assets to cover the losses. It is hard for the Federal Reserve to keep monetary conditions fixed when there are changes like these. The Federal Reserve uses tools like Open Market Operations, in which it buys and sells government bonds in the open market, to deal with these problems and keep the money supply in check. These acts have an effect on the reserves that banks hold and
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