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Chapter 14: Q4. (page 301)

Which group votes on the open-market operations that are used to control the U.S. money supply and interest rates?

a. Federal Reserve System

b. the 12 Federal Reserve Banks

c. Board of Governors of the Federal Reserve System

d. Federal Open Market Committee (FOMC)

Short Answer

Expert verified

The correct answer is option d) Federal Open Market Committee (FOMC)

Step by step solution

01

Step 1. Explanation for the correct answer

The FOMC controls the money supply in the US economy by buying and selling bonds/securities through open market operations. In this way, it influences the inflation and interest rate in the economy. Thus, the FOMC is responsible for using open market operations to have an effective monetary policy in the US.

The Board of Governors, President of the Fed, and four of the 12 Federal Reserve banks are the members of the committee.

02

Step 2. Explanation for the incorrect options

The Federal Reserve System consists of all the bodies of the monetary system in the US. They have power in all, but the open market operations are decided by the FOMC only. So Federal Reserve System is the incorrect option.

Only 4 out of 12 banks have voting rights in the FOMC. So, option b is also incorrect. The Board of Governors has voting rights in the open market operations, but 4 Federal Reserve Banks and the president of the Fed also need to vote to make a decision. So option c is also incorrect.

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Most popular questions from this chapter

Explain and evaluate the following statements:

a. The invention of money is one of the great achievements of humanity, for without it the enrichment that comes from broadening trade would have been impossible.

b. Money is whatever society says it is.

c. In the United States, the debts of government and commercial banks are used as money.

d. People often say they would like to have more money, but what they usually mean is that they would like to have more goods and services.

e. When the price of everything goes up, it is not because everything is worth more but because the currency is worth less.

f. Any central bank can create money; the trick is to create enough, but not too much, of it.

What are the three basic functions of money? Describe how rapid inflation can undermine money鈥檚 ability to perform each of the three functions.

What do economists mean when they say that the Federal Reserve Banks are central banks, quasi-public banks, and bankers鈥� banks?

Recall the formula that states that $V = 1/P, where V is the value of the dollar and P is the price level. If the price level falls from 1 to 0.75, what will happen to the value of the dollar?

a. It will rise by a third (33.3 percent).

b. It will rise by a quarter (25 percent).

c. It will fall by a quarter (鈭�25 percent).

d. It will fall by a third (鈭�33.3 percent).

Which of the following is not a function of the Fed?

a. Setting reserve requirements for banks.

b. Advising Congress on fiscal policy.

c. Regulating the supply of money.

d. Serving as a lender of last resort.
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