The Fed & Monetary Policy Quiz (Video Review)

What is the role of the Federal Reserve in the United States?

• All of the roles

• Controlling inflation

• Setting interest rates

• Regulating banks

How do low interest rates affect borrowing and spending?

• Borrowers take out more loans and spend less

• Borrowers take out less loans and spend more

• Borrowers take out more loans and spend more

• Borrowers take out less loans and spend less

How do high interest rates affect borrowing and spending?

• Borrowers take out more loans and spend less

• Borrowers take out less loans and spend more

• Borrowers take out more loans and spend more

• Borrowers take out less loans and spend less

What is the main way the Fed manipulates interest rates?

• The Federal Open Market Committee votes to change the money supply through open market operations, changing the discount or federal funds rate, or reserve requirement.

• The Federal Open Market Committee votes, but also must have the approval of Congress to change interest rates.

• The Federal Open Market Committee can print more money and this is the main way to change the money supply and interest rates.

• The Federal Open Market Committee directs sets interest rates by telling banks they must listen.

What happens to interest rates when there is a larger money supply?

• Interest rates stay the same

• Interest rates increase

• Interest rates fluctuate

• Interest rates decrease

What happens to interest rates when there is a smaller money supply?

• Interest rates stay the same

• Interest rates increase

• Interest rates fluctuate

• Interest rates decrease

What is the reserve requirement for banks?

• The percentage of money banks can loan out

• The percentage of money banks must keep

• The percentage of money banks can invest

• The percentage of money banks can charge as interest

What is the purpose of quantitative easing which was done during the Great Recession and Covid?

• To stimulate the economy

• To increase interest rates

• To decrease inflation rates

• To reduce government spending

Why is quantitative easing controversial?

• The Fed became more involved in the buying bonds and mortgage securities than ever before and pushed the interest rate down close to zero for the first time ever.

• The government became larger and government debt increased.

Which type of monetary policy is best for stopping a recession?

• Expansionary monetary policy

• Fiscal policy

• Contractionary monetary policy

• Neutral monetary policy