The main policy designer of the Federal Reserve system is the ...

[serike]

The main policy designer of the Federal Reserve system is the
 
  A) 12 district banks.
  B) President and Congress.
  C) Federal Open Market Committee.
  D) Council of Economic Advisors.

Question 2

How does the real interest affect households' decisions about saving?
 
  What will be an ideal response?

[jackie]

Answer to Question 1

C

Answer to Question 2

All disposable income is either used for consumption or saving. The opportunity cost of consumption is the amount of foregone interest you could earn if you saved. The return to saving is the real interest rate, so the higher the real interest rate, the greater the opportunity cost of consuming and not saving. As a result, an increase in the real interest rate leads to an increase in the quantity households save.