Chapter Questions
Why was the Federal Reserve System set up with twelve regional Federal Reserve banks rather than one central bank, as in other countries?
Why is the Twelfth Federal Reserve district so geographically large, while the Second Federal Reserve district is so small by comparison?
Should the Federal Reserve redraw its district boundaries, similar to how congressional districts are periodically realigned? Why or why not?
"The Federal Reserve System resembles the U.S. Constitution in that it was designed with many checks and balances." Is this statement true, false, or uncertain? Explain your answer.
Which entities in the Federal Reserve System control the discount rate? Reserve requirements? Open market operations?
In what ways can the regional Federal Reserve Banks influence the conduct of monetary policy?
Why is it important for the regional Federal Reserve bank presidents to attend the FOMC meetings, even if they are nonvoting members?
Why is the New York Federal Reserve always a voting member on the FOMC?
The presidents of each of the district Federal Reserve banks (including the New York Federal Reserve bank) are currently not required to undergo a formal political appointment and approval process. Do you think this is appropriate? Why or why not?
Do you think that the fourteen-year nonrenewable terms for governors effectively insulate the Board of Governors from political pressure?
Despite the important role that the Board of Governors has in setting monetary policy, seats to serve on the Board of Governors can sometimes be empty for several years. How could this happen?
How is the president of the United States able to exert influence over the Federal Reserve?
Why is it unlikely that the policy recommendation put forth by the chairman of the Board of Governors would ever be voted down by the rest of the FOMC?
How does the Federal Reserve have a high degree of instrument independence? If it has a specific mandate from Congress to achieve "maximum employment and low, stable prices," then how does the Fed have goal independence?
The Fed is the most independent of all U.S. government agencies. What is the main difference between it and other government agencies that explains the Fed's greater independence?
What is the primary tool that Congress uses to exercise some control over the Fed?
Should the Federal Reserve be subject to periodic auditing of its policies, procedures, and finances? Why or why not?
In the 1960 s and 1970 s, the Federal Reserve System lost member banks at a rapid rate. How can the theory of bureaucratic behavior explain the Fed's campaign for legislation to require all commercial banks to become members? Was the Fed successful in this campaign?
"The theory of bureaucratic behavior indicates that the Fed never operates in the public interest." Is this statement true, false, or uncertain? Explain your answer.
Why might eliminating the Fed's independence lead to a more pronounced political business cycle?
"The independence of the Fed leaves it completely unaccountable for its actions." Is this statement true, false, or uncertain? Explain your answer.
"The independence of the Fed has meant that it takes the long view and not the short view." Is this statement true, false, or uncertain? Explain your answer.
The Fed promotes secrecy by not releasing the minutes of the FOMC meetings to Congress or the public immediately. Discuss the arguments for and against this policy.
Which is more independent, the Federal Reserve or the European Central Bank? Why?
Why did the Bank of England up until 1997 have a low degree of independence?