Principles of Macroeconomics 2e
2nd Edition
ISBN: 9781947172388
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Textbook Question
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Chapter 15, Problem 1SCQ
Why is it important for the members of the Board of Governors of the Federal Reserve to have longer terms in office than elected officials, like the President?
Expert Solution & Answer
To determine
The reason behind longer appointment terms of the members of the Board of Governors of the Federal Reserve in comparison to the elected officials, like the Presidents.
Explanation of Solution
The Federal Reserve System (Central Bank of the USA) is actually a semi-decentralized organization managed by a mix of appointees, from private-sector banks as well as from the government. A Board of Governors comprising seven members appointed by the President of the USA and confirmed by the Senate runs “the Fed” on 14-year terms.
The reason behind such long and staggered appointment terms of the members of the Board of Governors is to isolate them from political pressure to the maximum extend possible. It helps the board in making unbiased policy decisions only based on their economic merits. Further, to insulate decision-making from politics during filling of an unfinished term, each member only serves one term. The Fed’s policy decisions do not require congressional approval, and unlike President, Federal Reserve Governor cannot resign with cabinet positions.
Economics Concept Introduction
Organization of the U.S. Federal Reserve: The Federal Reserve System is basically the central bank of the USA engaged in making decisions regarding money supply. It not only decides whether to lower or raise interest rates and, influence macroeconomic policy but also regulates the nation’s banking system to insure the health of the bank’s balance sheet and protect bank depositors. In USA, we call the central bank the Federal Reserve System often abbreviated as “the Fed.”
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Chapter 15 Solutions
Principles of Macroeconomics 2e
Ch. 15 - Why is it important for the members of the Board...Ch. 15 - Given the danger of bank runs, why do banks not...Ch. 15 - Bank runs are often described as self-fulfilling...Ch. 15 - If the central bank sells 500 in bonds to a bank...Ch. 15 - What would be the effect of increasing the banks...Ch. 15 - Why does contractionary monetary policy cause...Ch. 15 - Why does expansionary monetary policy causes...Ch. 15 - Why might banks want to hold excess reserves in...Ch. 15 - Why might the velocity of money change...Ch. 15 - How is a central bank different from a typical...
Ch. 15 - List the three traditional tools that a central...Ch. 15 - How is bank regulation linked to the conduct of...Ch. 15 - What is a bank run?Ch. 15 - In a program of deposit insurance as it is...Ch. 15 - In government programs of bank supervision, what...Ch. 15 - What is the lender of last resort?Ch. 15 - Name and briefly describe the responsibilities of...Ch. 15 - Explain how to use an open market operation to...Ch. 15 - Explain how to use the reserve requirement to...Ch. 15 - Explain how to use the discount rate to expand the...Ch. 15 - How do the expansionary and contractionary...Ch. 15 - How do tight and loose monetary policy affect...Ch. 15 - How do expansionary, tight, contractionary, and...Ch. 15 - Which kind of monetary policy would you expect in...Ch. 15 - Explain how to use quantitative easing to...Ch. 15 - Which kind of monetary policy would you expect in...Ch. 15 - How might each of the following factors complicate...Ch. 15 - Define the velocity of the moneyCh. 15 - What is the basic quantity equation of money?Ch. 15 - How does a monetary policy of inflation target...Ch. 15 - Why do presidents typically reappoint Chairs of...Ch. 15 - In what ways might monetary policy be superior to...Ch. 15 - The term moral hazard describes increases in risky...Ch. 15 - Explain what would happen if banks were notified...Ch. 15 - A well-known economic model called the Phillips...Ch. 15 - How does rule-based monetary policy differ from...Ch. 15 - Is it preferable for central banks to primarily...Ch. 15 - Suppose the Fed conducts an open market purchase...Ch. 15 - Suppose the Fed conducts an open market sale by...Ch. 15 - All other things being equal, by how much will...Ch. 15 - Suppose now that economists expect the velocity of...Ch. 15 - If GDP is 1,500 and the money supply is 400, what...Ch. 15 - If GDP now rises to 1,600, but the money supply...Ch. 15 - If GDP now falls back to 1,500 and the money...
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