How is accountability achieved for the Federal Reserve and is it clear?
What will be an ideal response?
The Congress of the United States has set the Fed's objectives. The Congress certainly has the power to alter the structure and the independence of the Fed. In a sense the Fed then is accountable to the Congress to meet these objectives. The problem lies in the vagueness of the objectives. Congress has given the Fed objectives that are quite vague and result in ambiguity. Some people see the ambiguity as an advantage in that it really does give the Fed more freedom to set their own goals.
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Refer to Pollutants. Suppose transactions costs are zero. Who should be made liable for the crop damage if the goal is to achieve an efficient outcome?
A chemical plant's production adds pollutants to a stream which irrigates a farm's crops. The pollutants damage the farm's crops, increasing the firm's costs by $800 per month. The crop damage may be eliminated in two ways: the chemical plant can install a new filtering system costing $300 per month, or the farm can install a new irrigation system costing $600 per month. a. The chemical plant should be made liable, because it is the source of the pollution. b. The chemical plant should be made liable, because it possesses the least-cost method of eliminating the externality. c. The farm should be made liable, because it can receive a bribe from the chemical plant. d. An efficient outcome will be achieved no matter who is made liable for the crop damage.
Which of the following cities contains a Federal Reserve bank?
A) Pittsburgh B) Los Angeles C) Seattle D) Dallas
When the Fed decreases the required reserve ratio, then the:
a. ability of banks to make loans is restricted. b. ability of banks to make loans is enhanced. c. ability of banks to make loans is unaffected. d. interest rate that banks pay to the Fed to borrow money is reduced. e. interest rate that banks pay other banks to borrow money is decreased.
When entry barriers are low, firms in a competitive price-searcher market
a. can expect many new rivals to enter regardless of current profitability. b. can expect competing firms to enter the market if the activity is profitable. c. can never earn economic profit. d. will always be able to earn economic profit.