Chapter 4 Assignment

Federal Reserve's monetary policy decision-making process.

1. FOMC members receive expert analyses of the economy and economic forecasts. 2. FOMC members, including both voting and nonvoting members, discuss what the Fed's monetary policy should be. 3. The FOMC issues a clear detailed statement that summarizes its decision about the selected target federal funds rate. 4. The minutes for the FOMC meeting are provided to the public and made accessible on Federal Reserve websites. 5. If the FOMC determines that a change in its monetary policy is appropriate, its decision is forwarded to the Trading Desk at the New York Federal Reserve District Bank through a statement called the policy directive.

There are ? members of the Federal Open Market Committee.

12

Suppose the FOMC's policy directive instructs the Trading Desk at the New York Fed to increase the federal funds rate because the U.S. economy is prospering and the FOMC wants to balance out an impending increase in the inflation rate.

If the FOMC wants to increase the Fed funds rate, then the Trading Desk traders will sell government securities. This results in a shift of the money supply curve to the left , and so there will be a(n) increase in interest rates. As a result, consumers will purchase less and save more , and businesses will invest less . Consequently, the aggregate demand curve will shift to the left, resulting in a decrease in the inflation rate, exactly what the FOMC wanted.

Which of the following is not considered a reliable measure for monitoring and controlling the money supply, due to its volatility? Check all that apply.

M1

Clancy has $1,200 in a checking account.

M1,M2,M3

Which of the following does the Fed use as a reliable measure for monitoring and controlling the money supply?

M2&M3

Hubert has $2,000 in a savings account.

M2,M3

A bank sells securities to another bank and agrees to buy the securities back at a higher price, one month from today.

M3

Which of the following are the Federal Advisory Council responsible for?

Making recommendations to the Board of Governors about economic and banking issues

Which of the following are the Federal Open Market Committee responsible for?

Manipulating the money supply through open-market operations

Which of the following are organizational components of the Fed?

Member Banks The Community Depository Institutions Advisory Council The Federal Reserve Chair The Federal Open Market Committee The Chair of the Board of Governors Federal Reserve District Banks The Board of Governors The Community Advisory Council The Federal Advisory Council The New York district bank

Which of the following are ways that the Federal Reserve influences the U.S. economy through its monetary policies?

Using open-market operations to buy securities, the Fed can increase the money supply, thereby decreasing interest rates and subsequently increasing the rate of inflation. Using open-market operations to buy securities, the Fed can increase the money supply, thereby decreasing interest rates, which would cause security prices to increase. Using open-market operations to sell securities, the Fed can decrease the money supply, thereby increasing interest rates and subsequently reducing the rate of inflation. The Fed can decrease the Fed funds rate in an attempt to stimulate the economy.