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Author Question: The main policy designer of the Federal Reserve system is the A) 12 district banks. B) President ... (Read 87 times)

serike

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on: Jun 29, 2018
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

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Reply #1 on: Jun 29, 2018
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.


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