The 1977 Federal Reserve Act, as amended in 1978, 1988 and 2000, governs the behavior of the Federal Reserve.

a. In your opinion, does this excerpt from the Act make the policy goals of the Fed clear?

The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long-run growth of the monetary and credit aggregates commensurate with the economy's long-run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.

b. In your opinion, are these two excerpts from the act consistent with the position of the United States in Figure 22.2?

Data From Figure 22.2:-

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Average annual inflation rate (percent), 1960-1990 18 16 14 12 10 Portugal Greece Spain France 8 New Zealand Italy Ireland Denmark United Austria 16 Kingdom Australia United Canada States + Japan Belgium Netherlands Germany Switzerland 2 3 5 Less independent 7 9 Index of central bank independence 11 13 More independent Figure 22.2 Inflation and central bank independence Across OECD countries, the higher the degree of central bank independence, the lower the rate of inflation. Source: Grilli, V., Masciandaro, D. and Tabel- lini, G. (1991) 'Political and Monetary Institu- tions and Public Financial Policies in the Industrial Countries', Economic Policy, 6(13): pp. 341-92.