The Case for Federal Reserve Independence Does Not Include the Idea

question 91

Multiple Choice

The case for Federal Reserve independence does not include the idea that

• A) political pressure would impart an inflationary bias to monetary policy.
• B) the principal-agent problem is perhaps worse for the Fed than for congressmen since the former does not answer to the voters on election day.
• C) a politically insulated Fed would be more concerned with long-run objectives and thus be a defender of a sound dollar and a stable price level.
• D) a Federal Reserve under the control of Congress or the president might make the so-called political business cycle more pronounced.

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Definitions:

Interest

The cost of borrowing money, typically expressed as an annual percentage of the principal.

Unlevered Cost of Capital

The cost of capital for a company that has no debt, reflecting the returns required by equity owners alone.

Annual Coupon

The total interest payments made to bondholders each year, expressed as a percentage of the bond's face value.

Debt

Debt refers to the amount of money borrowed by one party from another, subject to repayment along with interest, used by businesses and governments to finance operations or projects.