Question

Determine whether the following statements related to the Federal Reserve are true, false, or you don't have enough information to answer.

a. Monetary policy always increases the stability of gross domestic product (GDP).
b. Monetary policy is simple.
c. An increase in the money supply increases short-run aggregate demand.
d. The Federal Reserve was chartered by the U.S. Constitution.
e. Monetary policy is ideally suited for affecting the prices of specific assets.

Answer 1

Several statements about the Federal Reserve were assessed for truthfulness. Statements implying that monetary policy always stabilizes GDP and is simple were false, as was the claim that the Fed was chartered by the U.S. Constitution and that monetary policy targets specific asset prices. It is true that an increase in money supply can boost short-run aggregate demand.

Step-by-step explanation:

Assessing the statements related to the Federal Reserve and its monetary policy concerning its truthfulness:

1. Monetary policy always increases the stability of gross domestic product (GDP). This statement is false. While monetary policy intends to stabilize the economy, it is not always successful due to various external factors and economic conditions.
2. Monetary policy is simple. This statement is false. Monetary policy involves complex decision-making processes and considerations of the current economic environment to achieve objectives such as controlling inflation and stabilizing the economy.
3. An increase in the money supply increases short-run aggregate demand. This statement is true. According to economic theory, an increase in the money supply typically results in lower interest rates, which can stimulate borrowing and spending, thereby increasing short-run aggregate demand.
4. The Federal Reserve was chartered by the U.S. Constitution. This statement is false. The Federal Reserve was created by the Federal Reserve Act of 1913 and is not chartered by the U.S. Constitution.
5. Monetary policy is ideally suited for affecting the prices of specific assets. This statement is false. Monetary policy primarily targets overall economic activity and inflation, not the prices of specific assets, although it can indirectly influence asset prices.

Answer 2

a. False

b. False

c. True

d. False

e. False

Step-by-step explanation:

a. False. While monetary policy can help stabilize GDP, it is not a guarantee. The effectiveness of monetary policy depends on a variety of factors, including the state of the economy and the specific actions taken by the Federal Reserve.

b. False. Monetary policy is a complex tool that involves a range of actions taken by the Federal Reserve, such as adjusting interest rates, changing reserve requirements for banks, and conducting open market operations. These actions are carefully considered and implemented based on the current state of the economy.

c. True. An increase in the money supply can lead to lower interest rates, which can stimulate spending and investment. This can increase short-run aggregate demand, which is the total demand for all goods and services in an economy over a relatively short period of time (usually a few years).

d. False. The Federal Reserve was created by an act of Congress in 1913, not by the U.S. Constitution.

e. False. While monetary policy can affect the prices of various assets (such as stocks, bonds, and real estate), it is not ideally suited for this purpose. The primary goal of monetary policy is to stabilize the overall economy by promoting full employment, stable prices, and moderate long-term interest rates. The effects on specific assets are secondary to this broader goal.