Explain the basic structure of the Federal Reserve System and how it makes major policy decisions.
What will be an ideal response?
The Federal Reserve system consists of 12 banks spread all over the country but closely tied together. Each Federal Reserve Bank has its own board of directors and, to a limited extent, can set its own policies. Effectively, however, the 12 banks act in unison on major policy issues, with control of major policy decisions resting with the Board of Governors and the Federal Open Market Committee (FOMC), headquartered in Washington, D.C. The FOMC consists of the seven members of the Board of Governors, the president of the New York Federal Reserve Bank, and four other presidents of Federal Reserve Banks, who serve on the committee on a rotating basis. The FOMC makes most of the key decisions influencing the direction and size of changes in the money supply; their regular, closed meetings are accordingly considered important by the business community, news media, and government.
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An increase in the demand for LED light bulbs due to changes in consumer tastes, accompanied by an increase in the supply of LED light bulbs as a result of government subsidies, will result in
A) an increase in the equilibrium quantity of LED light bulbs; the equilibrium price may increase or decrease. B) an increase in the equilibrium price of LED light bulbs and no change in the equilibrium quantity. C) an increase in the equilibrium quantity of LED light bulbs and no change in the equilibrium price. D) an increase in the equilibrium price of LED light bulbs; the equilibrium quantity may increase or decrease.
An increase in the expected future marginal product of capital would cause the IS curve to
A) shift up and to the right. B) shift down and to the left. C) remain unchanged. D) remain unchanged if firms face borrowing constraints; otherwise, shift down and to the left.