Macroeconomics Problem Set

Feb 3rd, 2012
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Sample question is 1) “The Federal Reserve System is structured in such a way as to insulate monetary policy from the political pressures characteristic of the rest of our political system of representative democracy.” Do you agree or disagree with this quote? Explain your answer.

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1) "The Federal Reserve System is structured in such a way as to insulate monetary policy from the political pressures characteristic of the rest of our political system of representative democracy." Do you agree or disagree with this quote? Explain your answer.I disagree with the quote. Though the Federal Reserve is an independent governmental agency, which decides long-run monetary policy for the nation, it is not completely exempted from congressional political pressure. The founders concerned that political pressure would bring undesirable financial effect, and tried to minimize the risk. For example, Members of the Board of Governors are appointed for 14 year-terms, and the chairman is appointed for 4-year term. The Federal Reserve does not receive the funding throughout congressional budget process. Nonetheless, despite of those systematical efforts, the Federal Reserve is affected by political pressure from the congress. Board members of the Federal Reserve have close ties with agents from Treasury Department and the White House. Moreover, the Federal Reserve is a creation of the Congress anyhow. Whether the Federal Reserve truly keeps autonomy is skeptical. 2) a) In what

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