Fed History/Structure
Q: Under the Fed's structure, these two groups rotate voting seats on the FOMC — only 5 of these presidents vote at any given time alongside the 7 Board of Governors members. Name the one Reserve Bank president who holds a permanent voting seat
A: Who is the President of the Federal Reserve Bank of New York
Q: This measure of inflation, preferred by the Federal Reserve for policy decisions, excludes food and energy prices
A: What is Core PCE (Personal Consumption Expenditures)
Q: This type of policy involves government decisions about taxation and spending to influence the economy, and is controlled by Congress
A: What is fiscal policy
Q: This term describes the problem where financial institutions take on excessive risk because they believe the government will rescue them if they fail, a central criticism of the 2008 bailouts
A: What is moral hazard
Q: This 18th-century economist wrote 'The Wealth of Nations' and introduced the concept of the 'invisible hand' guiding free markets
A: Who is Adam Smith
Q: This secret 1910 meeting on a Georgia island, attended by Senator Aldrich and top bankers, produced the blueprint that would become the Federal Reserve Act
A: What is the Jekyll Island meeting
Q: This term describes a sustained period in which inflation and unemployment rise simultaneously, famously occurring in the U.S. during the 1970s
A: What is stagflation
Q: When the government spends more than it collects in tax revenue, this results, which must be financed by borrowing through Treasury securities
A: What is a budget deficit (or fiscal deficit)
Q: During the 2008 crisis, the Fed invoked this rarely used emergency lending authority under the Federal Reserve Act to bail out AIG and create special lending facilities for non-bank institutions
A: What is Section 13(3)
Q: This economist argued that in a liquidity trap, monetary policy becomes ineffective and advocated for government spending to stimulate demand during recessions
A: Who is John Maynard Keynes
Q: In 1951, this agreement between the Fed and the Treasury Department freed the central bank from its obligation to peg interest rates on government bonds, restoring the Fed's monetary policy independence
A: What is the Treasury-Fed Accord of 1951
Q: This Fed Chair aggressively raised interest rates to nearly 20% in the early 1980s to break double-digit inflation, triggering a severe recession
A: Who is Paul Volcker
Q: This Keynesian concept refers to the amplified effect on GDP that results from an initial change in government spending or taxation
A: What is the fiscal multiplier
Q: In March 2020, the Fed established this facility to directly purchase corporate bonds for the first time in its history, crossing a line it had not crossed even during the Great Recession
A: What is the Secondary Market Corporate Credit Facility (SMCCF)
Q: This Chicago School economist championed the idea that inflation is 'always and everywhere a monetary phenomenon' and advocated for rules-based monetary policy
A: Who is Milton Friedman
Q: This 1978 legislation formally established the Fed's dual mandate of maximum employment and stable prices, replacing the earlier Employment Act of 1946's single focus on full employment
A: What is the Humphrey-Hawkins Full Employment Act (Full Employment and Balanced Growth Act of 1978)
Q: This curve illustrates the inverse short-run relationship between inflation and unemployment, suggesting policymakers face a tradeoff between the two
A: What is the Phillips Curve
Q: This phenomenon occurs when increased government borrowing drives up interest rates, thereby reducing private investment and partially offsetting the stimulus effect
A: What is crowding out
Q: After Silicon Valley Bank's collapse in 2023, the Fed created this emergency lending program allowing banks to borrow against Treasury and agency securities at par value, preventing forced fire sales
A: What is the Bank Term Funding Program (BTFP)
Q: This monetary policy rule suggests the central bank should adjust the nominal interest rate in response to deviations of inflation from target and output from potential
A: What is the Taylor Rule
Q: Before the Fed, the U.S. had two earlier attempts at central banking. Name both institutions and the approximate decades they operated
A: What are the First Bank of the United States (1791–1811) and the Second Bank of the United States (1816–1836)
Q: This economic concept describes a situation where people's beliefs about future inflation become self-fulfilling because workers demand higher wages and firms raise prices in anticipation
A: What are inflation expectations (or an expectations-driven wage-price spiral)
Q: This proposition states that government debt financing and tax financing are equivalent because rational consumers anticipate future taxes and increase savings accordingly, neutralizing fiscal stimulus
A: What is Ricardian Equivalence
Q: This theory, associated with economist Hyman Minsky, argues that long periods of financial stability paradoxically breed instability as market participants take on increasingly speculative and Ponzi-like financing structures
A: What is the Financial Instability Hypothesis (Minsky Moment)
Q: This Nobel Prize-winning economist developed the theory of rational expectations, arguing that people use all available information to forecast economic variables, undermining the effectiveness of systematic monetary policy
A: Who is Robert Lucas