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Chapter 14: Q6. (page 301)

Which of the following is not a function of the Fed?

a. Setting reserve requirements for banks.

b. Advising Congress on fiscal policy.

c. Regulating the supply of money.

d. Serving as a lender of last resort.

Short Answer

Expert verified

The correct answer is option b) Advising Congress on fiscal policy.

Step by step solution

01

Step 1. Functions of Federal Reserve

The major functions of the Fed include issuing currency, setting the reserve requirements, lending to financial institutions at the time of emergency, providing for check collection, supervising banks, and managing the money supply.

02

Step 2. Explanation for the correct answer

The Fed doesn’t advise Congress on fiscal policies. The fiscal policies refer to the tax and other expenditures of the government. In the US, the federal government and administrative authorities take the decision relating to fiscal policies. The Fed is not involved in the fiscal policy determination.

Since advising Congress is not included in the functions, option (b) is incorrect.

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Most popular questions from this chapter

Suppose that Lady Gaga goes to Las Vegas to play poker, and at the last minute, her record company says it will reimburse her for 50 percent of any gambling losses that she incurs. Will Lady Gaga probably wager more or less as a result of the reimbursement offer? Explain.

Assume that the following asset values (in millions of dollars) exist in Ironmania: Federal Reserve Notes in circulation = \(700; Money market mutual funds (MMMFs) held by individuals = \)400; Corporate bonds = \(300; Iron ore deposits = \)50; Currency in commercial banks = \(100; Savings deposits, including money market deposit accounts (MMDAs) = \)140; Checkable deposits = \(1,500; Small-denominated (less than \)100,000) time deposits = \(100; Coins in circulation = \)40.

a. What is M1 in Ironmania?

b. What is M2 in Ironmania?

Identify three functions of the Federal Reserve, other than its main role of controlling the supply of money.

Which group votes on the open-market operations that are used to control the U.S. money supply and interest rates?

a. Federal Reserve System

b. the 12 Federal Reserve Banks

c. Board of Governors of the Federal Reserve System

d. Federal Open Market Committee (FOMC)

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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