Why did the U.S. Congress establish the Federal Reserve as an independent agency?
What will be an ideal response?
Those who support the notion of an independent Federal Reserve System argue that the Fed should be protected from political pressures so that it can focus on the control of the money supply and the needs of the economy. Otherwise, the Fed would often be under intense political pressure to expand the money supply to accommodate an expansionary fiscal policy of the U.S. Congress. An independent Fed is more likely to maintain a stable currency and shield the economy from the intense inflationary pressure created by an overly expansionary fiscal policy.
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When the output of an economy exceeds the economy's full-employment capacity,
a. aggregate supply will increase until the economy can produce the output at the existing price level. b. the actual rate of unemployment will be less than the natural rate. c. wage rates and resource prices will tend to fall. d. interest rates will decline and help direct the economy back to full employment.