Question

Which group votes on the open-market operations that are used to control the U.S. money supply and interest rates?

a. Federal Reserve System

b. the 12 Federal Reserve Banks

c. Board of Governors of the Federal Reserve System

d. Federal Open Market Committee (FOMC)

Short answer

The correct answer is option d) Federal Open Market Committee (FOMC)

Step-by-step solution

Step 1. Explanation for the correct answer

The FOMC controls the money supply in the US economy by buying and selling bonds/securities through open market operations. In this way, it influences the inflation and interest rate in the economy. Thus, the FOMC is responsible for using open market operations to have an effective monetary policy in the US.

The Board of Governors, President of the Fed, and four of the 12 Federal Reserve banks are the members of the committee.

Step 2. Explanation for the incorrect options

The Federal Reserve System consists of all the bodies of the monetary system in the US. They have power in all, but the open market operations are decided by the FOMC only. So Federal Reserve System is the incorrect option.

Only 4 out of 12 banks have voting rights in the FOMC. So, option b is also incorrect. The Board of Governors has voting rights in the open market operations, but 4 Federal Reserve Banks and the president of the Fed also need to vote to make a decision. So option c is also incorrect.