Please explain to me why you picked the answer you did. thank you.
1.The most important tool of monetary policy is controlled by:
A. Governors of the 50 states
B. The Federal Open Market Committee
C. The U.S. Congress and the president
D. The Board of Governors
2.Which of the following contributes to making the Federal Reserve an "independent" policy-making body?
A.Its role is written into the U.S. Constitution
B.Members of the Board of Governors are appointed for 14-year terms.
C.There are 12 different Federal Reserve banks.
D.The Federal Reserve has three policy tools: discount rate, required reserve ratio, and open-market operations.
3.True or False: All else equal, if the government attempts to balance the budget during an economic boom (when the economy is at full employment and over heating,) the attempt will cause inflation.
1) B. The FOMC is the monetary authority of the United States. It is composed of the the Federal Reserve Board of Governors, the president of the Federal Reserve Bank of New York, and a rotating committee of other Reserve Bank presidents. The FOMC sets the target U.S. Federal Funds rate as well as the discount rate.
2) B. The Governors do not have to worry about elections or reappointment as their terms are sooooooo long. Hence they can act independently of the powers in office as they generally outlast them.
3) If the government was running deficits and decided to either decrease government spending or raise taxes, the effects would not be inflationary (rather, they would be restrictive on economic growth). However, if the government was running a surplus and decided to increase spending, than it would in fact be inflationary.