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Eco320 Review Questions 4

What factors make the Fed independent from politics? Why isthere so much political pressure on the Fed, despite its independence?

How does the Fed work to protect itself from politicalpressure?

Explain how the Fed can increase the money supply byengaging in open-market operations. What role do banks play in this process?

What are the Fed’sfour tools for affecting the money supply? Which tool is used most commonly?

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