Monetary policy

Review

Use your note sheet from yesterday to help you review.

Multiple Choice

Who is in charge of fiscal policy?

• President and Congress

• Federal Reserve

Multiple Choice

The tools of fiscal policy are...

• Interest rates

• Taxes and Government spending

• Checks and balances

• Open market operations

Multiple Choice

When the government raises taxes, what does it take out of circulation?

• Money
• Credit
• People
• Jobs

Multiple Choice

Taxing & spending to slow the economy is referred to as 

• budget surplus 
• monetary policy
• contractionary policy
• budget deficit

Multiple Choice

Taxing & spending to help the economy grow is referred to as

• expansionary policy
• monetary policy
• contractionary policy
• budget deficit

Multiple Choice

Increased taxes lead to

• more spending

• less spending

Multiple Choice

Prices for everyday items—food, gas, clothing—are rising quickly. Families are having a hard time keeping up, and the cost of living is growing faster than wages.

Should the government increase spending or decrease spending to help slow inflation?

• Increase spending

• Decrease spending

Multiple Choice

Millions of workers are losing their jobs, and businesses are struggling to stay open. People have less money to spend, which is slowing the economy even more.

Should the government increase spending (for example, on job programs or unemployment benefits) or decrease spending and save money?

• Increase spending

• Decrease spending

Multiple Choice

Growth is weak. People are saving instead of spending, and companies aren’t investing in new workers or equipment.

• Raise taxes

• Lower taxes

Multiple Choice

Prices for food, gas, and housing are rising fast. Consumers are spending too much too quickly, and the economy is overheating.

• Raise taxes

• Lower taxes

Multiple Choice

__________ refers to the government's ability to raise taxes and spend the money it raises.

• Fiscal Policy

• Monetary Policy

• Social Policy

Monetary Policy Basics

Government plans to address an issue.

Policy

The central bank keeping the economy stable by increasing or decreasing the money supply.

​​Monetary policy

Who uses monetary policy?

• The Federal Reserve Banks (national bank)

Open Ended

Why do you think there is more than one Federal Reserve Bank?

Open Ended

Why is it important for the Federal Reserve to be an independent agency?

The Federal Reserve works to address inflation and unemployment.

Inflation is the rise in prices over time.

Slow inflation is acceptable.

Rapid inflation is bad because prices rise faster than wages.

Multiple Choice

Who is in charge of Monetary Policy

• The Government

• The Federal Reserve System

• The states

• The Department of the Treasury

Multiple Choice

Monetary Policy is the Federal Reserve Systems attempt to...

• control the amount of money in circulation

• control the Federal Government's debt

• control state governments' spending

• none of these answers are correct.

Multiple Select

Which TWO economic goals is the Federal Reserve mandated to try to achieve?

• Economic Freedom

• Economic Efficiency

• Control inflation

• Economic Growth

• Full Employment

How does it do this?

• Controls money supply.

• More money in economy increases spending and employment.

• Less money slows spending and inflation.

​What does the Federal Reserve do if inflation is high?

Take money out of the economy and make it harder to borrow money to get people spending less (less demand = lower prices = lower inflation).

Lower amount of money banks must have on hand to increase investments and spending.

Increase amount of money banks must have on hand to lower spending and investments.

Reserve Requirement

Buying and selling bonds or government securities.

Buy bonds to put money into the economy.

Sell bonds to take money out of the economy.

​Open Market operations.

What are the tools of monetary policy?

Discount Rate

The cost of borrowing money.

Also known as interest rates.

Raise them to limit borrowing and spending.

Lower them to increase borrowing and spending.

How does it work?

The Federal Reserve loans money to banks.

Banks then loan money to you.

When banks are charged more to borrow, they charge you more to borrow.

This affects loans and credit cards.

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Reserve Requirements

​The amount of deposits a bank must keep.

Banks use deposited money for loans and investments.

They are required to keep a certain amount on hand at all times.

Open Ended

How does the Federal Reserve help to keep banks stable so they don't hurt the economy?

Let's review

Multiple Choice

If the federal reserve were to try to fix an unemployment problem, which type of policy would they use?

• Fiscal Policy

• Monetary Policy

• Foreign Policy

Multiple Choice

Which of the following is NOT a monetary policy tool of the federal reserve?

• Discount Rate

• Reserve Requirement

• Open Market Operations

• Taxation

Multiple Choice

What action would the Federal Reserve take to control inflation?

• Buy government securities
• Decrease the required reserve ratio
• Increase taxes
• Increase the discount rate

Multiple Choice

Which type of monetary policy would be MOST likely to reduce the unemployment rate?

• No change to the money supply

• Decrease the money supply

• Increase the money supply

Multiple Choice

If the Federal Reserve were to try to decrease inflation, which monetary policy goal would be best?

• Increase the money supply

• Decrease the money supply

• Keep the money supply the same

Multiple Choice

Which monetary policy tool would best decrease the money supply to reduce inflation?

• Increase the discount rate

• Decrease the discount rate

• Decrease the reserve requirement

Multiple Choice

If the Fed wants to increase the cost of loans, then it should adjust...

• Open Market Operations

• The Reserve Ratio

• The Discount Rate

Multiple Choice

If the Fed wants to reduce the amount of loans a bank can make, then it should adjust...

• Open Market Operations

• The Reserve Requirement

• The Discount Rate

Multiple Choice

Selling bonds

• increases money supply
• decreases money supply

Multiple Choice

Buying bonds

• increases money supply
• decreases money supply

Multiple Choice

decreasing the discount rate:

• increases money supply
• decreases money supply

Multiple Choice

Increasing the discount rate:

• increases money supply
• decreases money supply

Multiple Choice

If unemployment is high, the Federal Reserve needs to:

• increases money supply
• decreases money supply

Multiple Choice

If inflation is high, the Federal Reserve needs to:

• increases money supply
• decreases money supply

Multiple Choice

If GDP is low, the Federal Reserve needs to:

• increases money supply
• decreases money supply

Poll

How would you rank your understanding of monetary policy?

• Okay

• Need a little more information

• Not good