978-0134733821 Chapter 13 Solution Manual

Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 152

Chapter 13

ANSWERS TO QUESTIONS

1. Why was the Federal Reserve System set up with twelve regional Federal Reserve Banks,

rather than one central bank as in other countries?

2. Why is the Twelfth Federal Reserve district (San Francisco) so geographically large, while the

Second Federal Reserve district (New York) is so small by comparison?

3. Should the Federal Reserve redraw its district boundaries, similar to the manner in which

congressional districts are periodically realigned? Why or why not?

4. “The Federal Reserve System resembles the U.S. Constitution in that it was designed with

many checks and balances.” Is this statement true, false, or uncertain? Explain your answer.

5. Which entities in the Federal Reserve System control the discount rate? Reserve requirements?

Open market operations?

Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 157

legislation, which is much easier to do. On the other hand, the goal for the ECB is more

clearly specified than it is for the Fed because the Maastricht Treaty states that the overriding

long-run goal of the ECB is price stability, although it doesn’t specify exactly what “price

stability” means.

25. Why did the Bank of England up until 1997 have a low degree of independence?

ANSWERS TO DATA ANALYSIS PROBLEMS

1. Go to the St. Louis Federal Reserve FRED database and find data on the unemployment rate

in the following states: Kentucky (KYUR), North Dakota (NDUR), Alaska (AKUR), New York

(NYUR), Alabama (ALUR), Texas (TXUR), and the national unemployment rate (UNRATE)

a. For the most recent month of data available, determine which of those states had the

highest, and which had the lowest, unemployment rate; how do these compare to the

national average?

b. Given your answer to part (a), what does this say about the need for all twelve Federal

Reserve district presidents to participate in the FOMC meetings?

Given the wide variability in unemployment rates in this group of states, it makes sense

that all regional presidents participate in the FOMC discussions, so that the voting

2. Go to the St. Louis Federal Reserve FRED database and find data on the federal funds rate

target (DFEDTAR, DFEDTARU, and DFEDTARL) and the discount, or primary credit rate

(DPCREDIT). When was the last time the federal funds rate target was changed? When was

the last time the primary credit rate was changed? Did the rates increase or decrease?