Author Question: Briefly discuss the organization of the Federal Reserve. Include in your answer a discussion of the ... (Read 68 times)

Metfan725 · **on:** Jun 30, 2018

Briefly discuss the organization of the Federal Reserve. Include in your answer a discussion of the individuals/groups who make decisions about monetary policy.

What will be an ideal response?

Question 2

First, write out the equation that represents the Taylor rule. Second, discuss how the Taylor rule is used to explain the implementation of monetary policy.

What will be an ideal response?

Swizqar · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

In terms of the structure of the Fed, answers should mention the 12 district banks (and their presidents), the Board of Governors, the FOMC, and, possibly, the open market desk in New York. In terms of the individuals, answers should include a discussion of the 7 governors (with 14-year terms) and the chair with a renewable 4-year term. The role that district presidents play on the FOMC should also be noted.

Answer to Question 2

The Taylor rule is represented as the following: i = i + a( - ) - b(u - un). i is the target interest rate and is the desired inflation rate. Two quick cases can be examined. If actual inflation is greater than , the central bank should raise the interest rate above the target rate. This will reduce economic activity and reduce the actual inflation rate over time. If the unemployment rate is above the natural rate, the central bank should set the interest rate below the target rate in order to stimulate economic activity.