Economics 12E - Arnold - TB_291

Economics 12E - Arnold - TB_291 - 182 What is the name and...

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182. What is the name and make-up of the policymaking group that has the authority to conduct open market operations? Describe how the use of open market operations helps to increase or decrease the money supply. ANSWER: The group responsible for conducting open market operations is the Federal Open Market Committee (FOMC). The FOMC is made up of twelve members. They are the seven board members, the president of the New York Federal Reserve District Bank, and four other Federal Reserve District Bank presidents (who rotate on and off the committee every year). In order to decrease the money supply, the Fed sells government securities (called an open market sale). As the Fed makes an open market sale, the money paid to the Fed by the buyer of the securities will result in a decrease in bank reserves and the money supply will ultimately decrease. POINTS: 1 DIFFICULTY: Challenging NATIONAL STANDARDS: United States - BUSPROG: Analytic LOCAL STANDARDS: United States - OH - Default City - DISC: The role of government KEYWORDS: Bloom's: Application 183. Explain the major differences between the Federal Reserve and the U.S. Treasury. ANSWER: Although many people confuse the Treasury and the Fed, each has its own distinct role to play. The U.S. Treasury is a budgetary agency, while the Federal Reserve is a monetary agency. The Treasury is responsible for managing the financial affairs of the federal government. In this capacity they collect the taxes and borrow the funds necessary to pay for government expenditures. The Fed is primarily concerned with the availability of money and credit for the entire economy, in doing so they help to provide a stable monetary framework for the economy. Unlike the Treasury, the Fed can create money “out of thin air”. The Treasury mints the coins, and the Fed issues paper money. The Treasury issues Treasury securities, but the Fed does not. POINTS: 1 DIFFICULTY: Challenging NATIONAL STANDARDS: United States - BUSPROG: Analytic LOCAL STANDARDS: United States - OH - Default City - DISC: The role of government KEYWORDS: Bloom's: Application 184. Explain the difference between the
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