Question

Why are the terms for the members of the Fed Board of Governors so long?

Select one:

A. To help keep them independent of political pressure.

B. To allow them to serve as many years as possible under the same U.S. president.

C. To experience as many economic cycles as possible during their term.

D. To help attract qualified candidates.

Which would NOT be a way that the Fed engages in CONTRACTIONARY (restrictive) monetary policy?

Select one:

A. lowering the required reserve ratio

B. raising the Federal Funds rate

C. selling securities to banks

D. raising the discount rate

Answer 1

Ans 1: A. To help keep them independent of political pressure.

This is the reason behind the long terms for the members of the Fed, so that they can work independently.

Ans 2: All options are showing contractionary monetary policy except option (A)  lowering the required reserve ratio, as it will cause the banks to have more reserves and would generate more loans in the economy that causes rise in money supply and lead to increase in aggregate demand.

Therefore, option (A) is the example of expansionary monetary policy.