Economic questions

1.Describe the organizational structure (different parts) of the Federal Reserve bank.

2.What is the equation of exchange? What are the variables, which are in it, and how do they relate to each other?

  1. Outline to the policy choices for contractionary and expansionary options of the Fed. 4.You have the assignment of making a recommendation to the Chairman of the Fed during a period of persistent, high inflation. What could you do to restore stable prices?

5.How will an expansionary monetary policy affect the GDP when the economy is at less than full employment? At full employment?

  1. how would the economy change with a new president ? what does it mean for economic growth, and job creation ?
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Sample Answer

here are the different parts of the Federal Reserve System:

  • The Board of Governors: The Board of Governors is the central governing body of the Federal Reserve System. It is located in Washington, D.C., and is responsible for setting monetary policy, supervising and regulating banks, and providing financial services to banks and other financial institutions.
    Federal Reserve System Board of Governors
  • The Federal Open Market Committee (FOMC): The FOMC is the main policy-making body of the Federal Reserve System. It is responsible for setting monetary policy, which is the use of interest rates and other tools to control the supply of money and credit in the economy. The FOMC meets eight times a year to discuss monetary policy and make decisions about interest rates.
    Federal Reserve System Federal Open Market Committee (FOMC)

Full Answer Section

  • The Federal Reserve Banks: The Federal Reserve Banks are the operating arms of the Federal Reserve System. There are 12 Federal Reserve Banks, each located in a different district. The Federal Reserve Banks are responsible for carrying out the monetary policy decisions of the FOMC, supervising and regulating banks, and providing financial services to banks and other financial institutions.
    Federal Reserve System Federal Reserve Banks
  • The Federal Reserve System’s Open Market Trading Desk: The Federal Reserve System’s Open Market Trading Desk is responsible for conducting the open market operations of the Federal Reserve System. Open market operations are the buying and selling of U.S. Treasury securities by the Federal Reserve System in order to influence the supply of money and credit in the economy.

The equation of exchange is an equation that describes the relationship between the money supply, the velocity of money, the price level, and real output. The equation is expressed as:

MV = PY

where:Federal Reserve System Federal Reserve Banks

  • M is the money supply
  • V is the velocity of money
  • P is the price level
  • Y is real output

The equation of exchange states that the money supply multiplied by the velocity of money is equal to the price level multiplied by real output. This means that the amount of money in circulation multiplied by how often it changes hands is equal to the total value of goods and services produced in the economy.

The velocity of money is the average number of times a dollar bill changes hands in a year. It is a measure of how active money is in the economy. The price level is the average price of goods and services in the economy. Real output is the total value of goods and services produced in the economy, adjusted for inflation.

The equation of exchange is a useful tool for understanding the relationship between money, inflation, and economic activity. It can be used to predict how changes in the money supply will affect the price level and real output.

The equation of exchange is not without its critics. Some economists argue that it is too simplistic and does not take into account other factors that affect inflation, such as supply shocks and changes in consumer preferences. Others argue that the velocity of money is difficult to measure and can be volatile.

Despite its limitations, the equation of exchange is a useful tool for understanding the relationship between money, inflation, and economic activity.

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