Question 1

Explain how the Fed is structured and controlled.

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Question 2

In what ways is the Federal Reserve System independent of the political process in the United States?

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Question 3

If money is neutral in the long run, why would the Fed want to increase the money supply? Explain carefully.

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Question 4

What is systemic risk and how does the Fed deal with it?

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Question 5

Explain how the Federal Reserve controls the money supply.

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Question 6

Why are banks reluctant to borrow at the discount window?

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Question 7

Explain why the existence of the Federal Deposit Insurance Corporation may reduce bank panics.

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Question 8

Use the AD-AS model to illustrate how real GDP and inflation rate will change in the short run and in the long run if the Fed conducts an open market purchase.

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Question 9

Suppose the Fed has increased the discount rate. With the aid of an AD-AS diagram, explain how this monetary policy action will affect real growth and inflation in the short run and the long run.

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Question 10

If the Fed wishes to implement a policy to influence aggregate demand, what are some of the important variables that it monitors and predicts in order to fine-tune its actions?

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Question 11

What are the three tools the Fed can use to change the money supply in the economy? Briefly explain how they can affect the money supply.

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Question 12

Why did the Federal Reserve begin to pay interest on reserves held by banks?

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Question 13

Figure: Fed Policy  
If an economy is operating below its long-run potential growth rate as shown in the graph, what can the Fed do to bring the economy back toward its long-run growth rate? Explain.

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If an economy...

Quiz 15: The Federal Reserve System and Open Market Operations