INSTRUCTOR DISCUSSION NOTES:
Steady There, Mr. Bernanke

1. Use any source available to identify the make up of the F.O.M.C. Do you think that the F.O.M.C. reflects a broad enough range of opinion to represent the U.S. economy?

The Federal Open Market Committee (FOMC) consists of twelve members—the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis. The rotating seats are filled from the following four groups of Banks, one Bank president from each group: Boston, Philadelphia, and Richmond; Cleveland and Chicago; Atlanta, St. Louis, and Dallas; and Minneapolis, Kansas City, and San Francisco. Nonvoting Reserve Bank presidents attend the meetings of the Committee, participate in the discussions, and contribute to the Committee's assessment of the economy and policy options. The FOMC holds eight regularly scheduled meetings per year—one about every six weeks excepting the holiday season. At these meetings, the Committee reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth.

This information and more can be reviewed at http://www.federalreserve.gov/FOMC/—a great source for additional information on the structure of the Fed. Students’ opinions about how representative the FOMC is will vary, but the question is intended for them to dig a bit deeper about the kinds of information that the Reserve Bank Presidents bring with them to FOMC meetings as evidence of economic conditions in their area.

2. Discuss and expand on Bernanke’s notion of a “soft landing.”

Bernanke’s notion of a soft landing refers to bringing the economy down from an inflationary high, characterized by strong economic growth and employment, without hitting any new employment lows. When the economy is booming and firms are expanding, they demand more labor. Stronger demand for labor increases wages, and thus costs to the employer. This is one type of inflation – one that economist call cost-push inflation. The Fed uses monetary policy to cool inflation by raising key interest rates, but higher interest rates deter continued investment and hiring--so economic growth and employment can suffer. This fine line between cooling inflation without causing a jump in unemployment is an elusive goal of the Fed in the art of applying monetary policy.

Multiple Choice/True False Questions

1. The F.O.M.C. referred to in the article is the committee that adopts monetary policy in the Fed.
  1. True
  2. False
ANS. a


2. The phrase used in the article, “cumulative effect” suggests that there is a lag between when a monetary policy is implemented and when it takes effect.
  1. True
  2. False
ANS. a

©2007  South-Western.  All Rights Reserved   webmaster  |   DISCLAIMER