Question

5. The Federal Reserve's organization

While all members of the Federal Reserve Board of Governors vote at Federal Open Market Committee (FOMC) meetings, only   of the regional bank presidents are members of the FOMC.

Members of the Board of Governors are appointed for 14-year terms.

There are 12 Federal Reserve banks.

Its role is written into the U.S. Constitution.

The Federal Reserve's primary tool for changing the money supply is   . In order to increase the number of dollars in the U.S. economy (the money supply), the Federal Reserve will   government bonds.

Answer 1

5. The Federal Reserve's organization

While all members of the Federal Reserve Board of Governors vote at Federal Open Market Committee (FOMC) meetings, only5   of the regional bank presidents are members of the FOMC.

Explanation:

The FOMC consists of the 7 members of the Board of Governors and 5 of the 12 regional bank presidents. The 5 voting positions in the FOMC rotate among the 12 regional bank presidents. The president of the New York Federal Reserve always has a vote, however, because the New York Federal Reserve conducts all open-market operations for the Federal Reserve System.

Which of the following contributes to making the Federal Reserve an independent policymaking body?

Members of the Board of Governors are appointed for 14-year terms.

There are 12 Federal Reserve banks.

Its role is written into the U.S. Constitution.

Explanation:

Because members of the Federal Reserve Board of Governors are appointed for 14-year terms, and because a president can serve at most eight years in office, the president cannot change the makeup of the board very much. Furthermore, the 14-year term is nonrenewable, so board members do not feel pressured to enact particular policies to secure reappointment. For both of these reasons, board members are largely insulated from political pressures and can therefore make judgments based solely on the economic needs of the country.

The Federal Reserve's primary tool for changing the money supply isopen market operations   . In order to increase the number of dollars in the U.S. economy (the money supply), the Federal Reserve willbuy   government bonds.

Explanation:

Open market operations are the Fed's primary tool for controlling the money supply. Open market operations involve buying and selling U.S. government bonds. To increase the money supply, the Fed creates dollars with which to purchase government bonds from the public. After the purchase, the Fed has bonds and the public has new dollars—an increase in the money supply. To reduce the money supply, the Fed sells U.S. government bonds to the public. After the sale, the public has bonds and the Fed has taken dollars out of circulation, thereby reducing the money supply.