4.6 Monetary Policy Practice

Front

The Fed buys bonds...

Back

Expansionary

Answer explanation

The Fed buys bonds to stimulate the economy, which is known as expansionary monetary policy.

Front

The Fed decreases the reserve requirement

Back

Expansionary

Answer explanation

When the Fed decreases the reserve requirement, it is expansionary. This means it stimulates economic growth by increasing the amount of money banks can lend.

Front

Price stability and low unemployment rate

Back

Dual mandate of the Fed

Answer explanation

The dual mandate of the Fed, which includes price stability and low unemployment rate, is the correct choice.

Front

What is the federal reserves key policy tool?

Back

Interest on reserves

Answer explanation

The Federal Reserve's key policy tool is the interest on reserves. It is used to control the money supply and influence interest rates.

Front

Central banks carry out policy to hit a _____ for an overnight interbank lending rate

Back

target range

Answer explanation

Central banks target a range for an overnight interbank lending rate to control monetary policy.

Front

Another word for overnight interbank lending rate

Back

central bank's policy rate

Answer explanation

The correct answer is 'central bank's policy rate'. It refers to the overnight interbank lending rate.

Front

The federal funds rate

Back

central bank's policy rate in the US

Answer explanation

The federal funds rate refers to the central bank's policy rate in the US. It is the interest rate at which depository institutions lend funds to each other overnight.

Front

In an economy with limited reserves, the central bank can influence the nominal interest rate by changing ____

Back

money supply

Answer explanation

The central bank can influence the nominal interest rate by changing the money supply.

Front

In an economy with ample reserves, changes in the money supply _____ effectively change the nominal interest rate; instead, the central bank can influence the nominal interest rate by changing its administered interest rates

Back

do not

Answer explanation

In an economy with ample reserves, changes in the money supply do not effectively change the nominal interest rate; instead, the central bank can influence the nominal interest rate by changing its administered interest rates.

Front

The name for when the fed buys or sells treasury bonds

Back

Open market operations

Answer explanation

Open market operations refers to when the fed buys or sells treasury bonds.