Question

1)What is the Federal Open Market Committee? What does it do? Who is on this committee?

2)Find the current FED funds target rate. Explain what this is.

3)Using T-accounts, show how the open market operations of the FED adjust banking balance sheets.

4)Much has been made of the FED’s recent policy of quantitative easing. What was this policy? What was it supposed to achieve?

5)Review the most recent report of the FOMC at www.federalreserve.gov/monetarypolicy/. In your own words, explain what the committee is saying.

Answer 1

1. FOMC is a comittee within the FED that controls money supply. It is composed of the board of governors, which has seven members and five federal reserve bank presidents.

• The FOMC controls open Market operations. The board set discount rate and reserve requirement to control the money supply. FOMC aims to achieve economic growth of between 2? to 3?. In order to do so, it controls unemployment (sets natural rate of unemployment between 4.7? to 5.8?) and inflation rate (target inflation rate is set at 2?).

• FOMC consists of twelve members - seven members of the board of governors from federal reserve system, president of federal reserve Bank of new York, and four of the remaining board members serve as one year term on a rotating basis. These four rotating seats are filled by one bank president from each of these four group of banks : Boston, Philadelphia, and Richmond ; Atlanta,dallas and st. Louis ; Minneapolis, Kansas city, san Fransisco ; Chicago and Cleveland.