Understanding Monetary Policy Basics

Front

What is one of the primary functions of the Federal Reserve?

Back

Regulating the money supply

Front

Which of the following is a type of monetary policy? Expansionary, Contractionary, Both A and B, None of the above

Back

Both A and B

Front

How does the Federal Reserve influence interest rates?

Back

By setting the federal funds rate

Front

What is the relationship between interest rates and inflation?

Back

Higher interest rates typically lead to lower inflation.

Front

Explain how open market operations can affect the money supply.

Back

By buying securities, the Fed increases the money supply; By selling securities, the Fed decreases the money supply.

Front

Which tool is primarily used by the Federal Reserve to control the money supply? Options: Taxation, Government spending, Currency exchange rates

Back

Open market operations

Front

Describe a scenario where the Federal Reserve might use contractionary monetary policy.

Back

To combat high inflation

Front

What is the effect of an increase in the reserve requirement on the money supply?

Back

It decreases the money supply

Front

Analyze how a decrease in interest rates can lead to economic growth.

Back

By making borrowing cheaper, encouraging investment and spending

Front

Evaluate the impact of open market operations on inflation. Options: Buying securities can increase inflation, Selling securities can decrease inflation, Both A and B, Neither A nor B

Back

Both A and B