Monetary Policy WIN

Front

Which entity of the Federal Reserve is responsible for monetary policy?

Back

Federal Open Market Committee

Front

What is the role of the Federal Open Market Committee (FOMC)?

Back

Conducting monetary policy

Front

When would the Federal Reserve use expansionary monetary policy?

Back

During a recession

Front

What is the goal of contractionary monetary policy?

Back

To control inflation

Front

What happens to interest rates during expansionary monetary policy?

Back

They decrease

Answer explanation

When interest rates decrease, consumers are more likely to take out loans on things like cars and houses. Businesses will make investments in capital when interest rates decrease. Both of these things will stimulate the economy and put people back to work. The country will get out of a recession!

Front

What is the dual mandate of the Fed?

Back

To maintain price stability and full employment

Front

When expansionary policy is used, the goal is to __________ consumer demand.

Back

increase

Answer explanation

When consumer demand increases, it means that prices will increase. This increase in price will signal to businesses that they need to produce more supply. When producers need to increase production, they will hire more labor...this will put people back to work and stimulate the economy.

Front

Why would the Fed influence interest rates to increase?

Back

To fight inflation

Answer explanation

When inflation occurs, prices are rising in the economy. When the Fed raises interest rates it discourages consumers and businesses from taking out loans. This decrease in demand for goods, services, and capital will cause prices to lower. (Left shift in demand will lower the equilibrium price)