Common Assessment Financing the Government

Select the reason why the Federal Reserve took the following action.

The Fed uses its monetary tools to increase the money supply in the US economy.

• Fear the economy is falling into a recession

• Fear the economy is growing too rapidly

Select the reason why the Federal Reserve took the following action.

The Fed announces that, effective immediately, it will be lowering the discount rate to member banks.

• Fear the economy is falling into a recession

• Fear the economy is growing too rapidly

Select the reason why the Federal Reserve took the following action.

The Fed issues an order that raises the federal reserve requirement on the nation's member banks.

• Fear the economy is falling into a recession

• Fear the economy is growing too rapidly

Select the reason why the Federal Reserve took the following action.

The Fed's Open Market Committee begins to sell millions of dollars of US Treasury bonds to private brokers.

• Fear the economy is falling into a recession

• Fear the economy is growing too rapidly

A major function of the Federal Reserve System is to

• pass laws to regulate the economy

• lend money to state governments

• manage the supply of currency and bank credit

• issue US savings bonds

In times of economic recession, the Federal Reserve Board often tries to encourage economic growth by

• decreasing the money supply

• ending unemployment benefits

• raising taxes on all money earners

• lowering interest rates

Which action could the Federal Reserve take to reduce the problem of recession?

• cutting money spent on social programs

• lowering the discount rate

• raising tariffs on foreign imports

• raising federal income taxes

Which pair shows a correct cause-and-effect relationship?

• rising inflation in the economy --> the Fed moves to lower the reserve requirement

• the economy is performing weakly --> the Fed moves to lower the discount rate

• the economy is expanding rapidly --> the Fed moves to lower the discount rate

• the economy is sluggish --> the Open Market Committee will sell US Treasury bonds

The following statement reflects the actions of the Fed, use your knowledge of monetary policy to identify the outcome the Fed is seeking.

The Federal Reserve banks start buying government securities, lower the discount rate, reduce the reserve requirements, and lower interest rates.

• Foster economic expansion

• Foster economic contraction

The following statement reflects the actions of the Fed, use your knowledge of monetary policy to identify the outcome the Fed is seeking.

The Fed begins to sell government securities, increase the discount rate, raise the reserve requirement, and increase interest rates.

• Foster economic expansion

• Foster economic contraction