What is the Federal Reserve System, and what is its role in managing the U.S. economy? Why might the chairman of the Federal Reserve feel political pressure even though he or she is independent?
Answer:
An ideal response will:
1. State that the basic function of the Federal Reserve is to control monetary policy by using interest rates in managing the money supply.
2. Discuss the membership and terms of service for the Federal Reserve Board of Governors, and explain what it means to be an independent regulatory commission.
3. Explain the federal funds rate, how it affects monetary policy, and its relation to the prime interest rate.
4. Explain why it is that even though the chairman of the Federal Reserve is not a well-known national figure, the chair can still come under constant scrutiny.
5. Provide a clear and concise conclusion.
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