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Chapter 14: Q6. (page 300)

How is the chairperson of the Federal Reserve System selected? Describe the relationship between the Board of Governors of the Federal Reserve System and the 12 Federal Reserve Banks. What is the purpose of the Federal Open Market Committee (FOMC)? What is its makeup?

Short Answer

Expert verified

The president selects the chairperson of the Federal Reserve System.

The Board of Governors takes decisions and guides the 12 Federal Reserve Banks to implement the decisions.

The purpose of the FOMC is to help the Board of Governors implement the monetary policy.

The 12 Federal Reserve Banks, along with the Board of Governors, form the FOMC.

Step by step solution

01

Step 1. Selection of chairperson of Federal Reserve System

The central authority of the U.S money and banking system is the Board of the Governors of the Federal Banking System. The U.S president appoints the chairperson, vice-chairperson, and other board members for the term of 14 years.

02

Step 2. Relationship between Board of Governors and 12 Federal Reserve banks

The Board of Governors takes decisions regarding the monetary policy, and the FOMC helps the Board implement the monetary policy. Therefore, the Board of Governors and Federal Reserves share a hierarchical relationship where the Board of governors ranks over the FOMC.

03

Step 3. Purpose of FOMC and its members

The FOMC comprises the Board of Members and 12 Federal Reserve Banks, who collectively make decisions and implement the monetary policy. The Board of Governors takes the decisions, and the 12 Federal Reserves work under the board to implement the decision.

The Federal Open Market Committee is made up of 12 individuals, including:

  • The seven members of the Board of Governors.

  • The president of the New York Federal Reserve Bank.

  • Four presidents were selected from the remaining Federal Reserve Banks, each serving on a one-year rotating basis.

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Most popular questions from this chapter

Suppose the price level and value of the U.S. dollar in year 1 are 1 and $1, respectively. If the price level rises to 1.25 in year 2, what is the new value of the dollar? If, instead, the price level falls to 0.50, what is the value of the dollar?

Assume that securitization combined with borrowing and irrational exuberance in Hyperville have driven up the value of asset-backed financial securities at a geometric rate, specifically from \(2 to \)4 to \(8 to \)16 to \(32 to \)64 over a 6-year time period. Over the same period, the value of the assets underlying the securities rose at an arithmetic rate from \(2 to \)3 to \(4 to \)5 to \(6 to \)7. If these patterns hold for decreases as well as for increases, by how much would the value of the financial securities decline if the value of the underlying asset suddenly and unexpectedly fell by $5?

Why are federal prosecutors reluctant to bring major charges against large financial firms? What was the main regulatory action of the Glass-Steagall law? Why might having many smaller financial firms be more stable than having fewer larger firms? What argument can be made for the possibility that larger financial firms might be more stable than smaller financial firms?

What are the three basic functions of money? Describe how rapid inflation can undermine money’s ability to perform each of the three functions.

Explain and evaluate the following statements:

a. The invention of money is one of the great achievements of humanity, for without it the enrichment that comes from broadening trade would have been impossible.

b. Money is whatever society says it is.

c. In the United States, the debts of government and commercial banks are used as money.

d. People often say they would like to have more money, but what they usually mean is that they would like to have more goods and services.

e. When the price of everything goes up, it is not because everything is worth more but because the currency is worth less.

f. Any central bank can create money; the trick is to create enough, but not too much, of it.
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