Question

1) The members of the Federal Reserve's Board of Governors

A. Have 10 members in total.

B. Are required to have been economics professors at elite universities.

C. Serve 16-year terms to insulate them from political pressures.

D. Are appointed by the president of the U.S. and confirmed by the U.S. Senate.

2) To increase the money supply the Fed can conduct open-market purchases. Alternatively, the Fed can

A. Decrease the discount rate.

B. Increase the discount rate.

C. Not change the discount rate.

D. Stop lending money to banks.

3) One reason that the Fed’s control of the money supply is not precise is because ____

A. The Fed has only one monetary tool.

B. None of the Fed’s tools are powerful.

C. The Fed cannot provide incentives for banks.

D. The Fed does not control the amount that banks choose to lend.

4) Which scenario is the best example of the unit of account function of money?

A. You have a yard sale, and you put a price tag of $50 on your old television and $10 for your old pots.

B. The grocery store you shop at accepts money in exchange for their food.

C. Selling your house for cash require a long and complicated process, while selling your video games can be sold for cash quickly and easily.

D. The money you have now can be used towards the purchase of a car today, or a new model of car next year.

Answer 1

1. Option D.

• The members of the federal reserves board of governors are appointed by the President of the US and confirmed by the US senate.
• In US there are 7 memebers of the board of governors who are appointed by the President after which the US senate confirms them to work for fourteen years or one long term.

2. Option A.

• Other than using open market operations to increase the money supply, the Fed can decrease the discount rate.
• Discount rate is the interest rate charged by Fed to the banks for the loans they borrow.
• When the Fed decreases the discount rate, the cost of borrowing decreases which further increases the money supply.

3. Option D.

• One reason that the fed's control of the money supply is not precise is because the Fed does not control the amount that banks choose to lend.
• Fed does not have direct control on regulating the amount each bank can lend to the public but rather it can provide incentives for the banks to either lend more or less.

4. Option A.

• You have a yard sale, and you put a price tag of $50 on your old television and $10 for your old pots is a scenario which is a best example of the unit of account function of money.
• The function unit of account states that value of anything can be measured in terms of currency or it can be compared in monetary terms with any other thing.