Federal Reserve and Monetary Policy Quiz

What is the main goal of the Federal Reserve when using monetary policy?

• To control interest rates

• To decrease the money supply

• To promote a healthy and stable economy

• To increase inflation

Which monetary tool involves buying and selling U.S. government securities to increase or decrease the money supply?

• Adjusting the reserve requirement

• Changing the discount rate

• Open market operations

• Issuing treasury bills

What is the reserve requirement for banks and how does it affect the money supply?

• It is the amount of money each bank is required to keep on hand

• It is the interest rate that the Fed charges banks to borrow money

• It is the amount of money the government requires banks to lend to businesses

• It is the percentage of profits that banks must reinvest in the economy

How does the Federal Reserve influence the money supply by changing the discount rate?

• By controlling the interest rate banks charge their customers

• By adjusting the amount of money banks are required to keep on hand

• By buying and selling U.S. government securities

• By directly injecting money into the economy

What is the Federal Open Market Committee (FOMC) responsible for?

• Regulating the stock market

• Deciding when and which monetary tools should be used to manage the economy

• Issuing currency and traveler's checks

• Setting the prime interest rate for banks

When the Federal Reserve wants to increase the money supply, what action do they take with the reserve requirement for banks?

• They buy back U.S. government securities

• They increase the reserve requirement

• They decrease the reserve requirement

• They keep the reserve requirement unchanged

What happens to the money supply when the Fed buys back U.S. government securities in open market operations?

• It becomes more volatile

• It decreases

• It increases

• It remains unchanged

How does the Fed influence the economy by raising the discount rate?

• It discourages borrowing and spending

• It has no impact on borrowing and spending

• It encourages borrowing and spending

• It leads to higher inflation

What is the primary purpose of the discount rate set by the Federal Reserve?

• To influence the money supply

• To regulate the stock market

• To control the amount of money banks can lend

• To determine the interest rate for government bonds