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Federal Reserve independence

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1. Explain why time lags are a problem for the effective implementation of fiscal policy.

2. Explain what is meant by a structural deficit and how it would differ from a cyclical deficit.

3. List and discuss the functions of money.

4. Explain what is meant by a "fractional" reserve banking system. How does this relate to a bank's ability to create money?

5. Describe actions that the federal reserve might take in pursuing a tight money policy.

6. Explain what is meant by a "recessionary gap".

7. Discuss some of the constraints on monetary policy.

8. Explain the process by which open market operations by the Federal reserve can be used to increase the money supply.

9. Discuss the various factors that underlie (contribute to) the demand for money.

10 Describe the causes of demand-pull inflation. Be sure to address the relationship between AS and AD.

11. Explain why many economists consider Federal Reserve independence to be critical to the effectiveness of monetary policy.

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Solution Summary

Describe the causes of demand-pull inflation.

Solution provided by:
Umut Oltulu, MBA
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  • BSc, Dokuz Eylul University
  • MBA, Texas A&M University-Kingsville
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