Exam 4: The Federal Reserve System, Monetary Policy, and Interest Rates

Suppose that oil prices hit an all-time high of $200 a barrel, driving U.S. inflation up to 7% per year. At the same time, weak U.S. growth and increasing foreign competition has generated unacceptably high levels of unemployment in the United States. You are the Chair of the Federal Reserve. What do you suggest?

Federal Reserve Board members are appointed by the U.S. President and confirmed by the Senate for a non-renewable 14-year term.

Currently the Fed sets monetary policy by targeting

The Check 21 Act effective in October 2004 does which of the following?

If the FOMC wished to generate faster economic growth, they could issue a policy directive to the Federal Reserve Board Trading desk to purchase U.S. government securities.

The fed funds rate is the rate that

Why did the Fed switch from increasing rates prior to 2007 to reducing interest rates in 2007 and 2008?

How do Federal Reserve Banks generate income? Do they require supplemental funding from Congress?

Is there a trade-off between controlling domestic inflation and maintaining a sustainable pattern of international trade?

Nationally chartered banks are required to become members of the Federal Reserve System.

Why do changes in reserve requirements have less predictable effects on the money supply in comparison to changes in open market operations?

What does the 2004 Check 21 law allow? Why was this law passed? Does it benefit the customer or banks? Explain.

The monetary base is the amount of coin and currency in circulation plus reserves.

The primary policy tool used by the Fed to meet its monetary policy goals is:

What supervisory and regulatory authority does the Fed have under current law?

The discount rate is the rate that

Four seats on the FOMC are allocated to Federal Reserve Bank presidents on an annual rotating basis.

How have recent changes in Discount Window credit programs affected the use of this tool for monetary policy?

The _______________ is a nationwide network jointly operated by the Fed and private institutions that electronically process credit and debit transfers of funds.

Explain how the deposit multiplier works.