Monetary Policy

Front

What is the primary purpose of the Federal Reserve using monetary tools?

Back

To regulate the nation's money supply

Front

What happens when the Federal Reserve lowers the discount rate?

Back

It becomes cheaper for banks to borrow money.

Front

What is the discount rate?

Back

The interest rate charged to commercial banks on loans they receive from the Federal Reserve

Front

What are reserve requirements?

Back

The minimum percentage of deposits a bank must hold

Front

When the Federal Reserve increases the discount rate, what is the likely impact on consumer borrowing?

Back

Consumer borrowing becomes more difficult and expensive

Front

Why might the Federal Reserve decide to lower reserve requirements?

Back

To increase the money supply

Front

What is the effect of increasing the discount rate on the economy?

Back

It slows down the economy by making borrowing more expensive.

Front

What is the likely consequence of the Federal Reserve reducing the discount rate during a recession?

Back

It can help to stimulate economic activity by making borrowing cheaper

Front

What role do reserve requirements play in monetary policy?

Back

They help control the amount of money banks can lend.

Front

In what way can adjusting the discount rate influence inflation?

Back

Lowering the discount rate can lead to higher inflation by increasing the money supply.