Problem
Answer each problem separately.
1. What factors make the Fed independent from politics? Why is there so much political pressure on the Fed, despite its independence?
2. How does the Fed work to protect itself from political pressure?
3. Explain how the Fed can increase the money supply by engaging in open-market operations. What role do banks play in this process?
4. What are the Fed's four tools for affecting the money supply? Which tool is used most commonly?