Which of the following is true regarding the Federal Reserve Select one: a. The

Question

Which of the following is true regarding the Federal Reserve

Select one:

a. The members of the Board of Governors are appointed by the President of the United States

b. It's board members are elected by the people living in the bank's district

c. They are a branch of the Federal Government under the U.S. treasury

d. It is charged with collecting taxes

Which of the following is appropriate monetary policy given a recession from a negative AD shock?

Select one:

a. Increase the amount of required reserve ratio

b. Buy government securities through open market operations

c. Increase interest paid on reserves held at the Fed

d. Increases the discount rate

Which of the following are tools the Federal Reserve uses to control the supply of money?

Select one:

a. Open market operations

b. Term auction facility

c. Interest of reserves

d. Discount rate

e. All of the above

Other things equal, will a temporary individual tax rebate or a permanent individual tax rebate provide the largest increase in aggregate demand?

Select one:

a. a permanent tax rebate

b. They will both produce the same amount of stimulus.

c. Neither will provide any stimulus.

d. a temporary tax rebate

Explanation / Answer

(1) (a)

The Federal reserve is the US Central Bank, the Governing Board members of which are selected by Congress (President).

(2) (b)

During recession, an expansionary monetary policy has to be adopted using buying of government securities in open market and/or by lowering discount rate and/or by lowering reserve ratio.

(3) (e)

All the tools are monetary policy tools.

(4) (a)

A permanent tax rebate will lead to a permanent increase in disposable income, increasing permanent consumption which will increase aggregate demand by a higher amount.

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