Understanding Monetary Policy

What is the primary role of the Federal Reserve?

• To manage the economy through monetary policy

• To print money

• To set educational standards

• To collect taxes

How does monetary policy aim to manage the economy?

• By changing the national anthem

• By organizing national sports events

• By maximizing employment and minimizing inflation

• By regulating school curriculums

Which of the following is NOT a tool used by the Fed in monetary policy?

• Open market operations

• Discount rate

• Income tax adjustments

• Reserve requirement

What happens when the Fed increases the reserve requirement?

• Banks have more money to loan out

• It leads to more economic activity

• Banks have less money to loan out

• It decreases the national debt

What is the purpose of the discount rate?

• To charge banks for overnight loans

• To set the interest rate on student loans

• To determine the price of discounted goods

• To calculate tax returns

What effect does increasing the discount rate have?

• Decreases the cost of borrowing from the Fed

• Reduces the federal deficit

• Increases economic activity

• Makes it more expensive to borrow money from the Fed

What are open market operations?

• Retail discount sales events

• Public trading of stocks and bonds

• The Fed buying or selling government securities

• Government-funded construction projects

How can the Fed decrease the money supply?

• By printing more money

• By selling securities

• By lowering the discount rate

• By increasing the reserve requirement

What might the government do if interest rates are already low and the economy needs stimulation?

• Raise the discount rate

• Ban international trade

• Issue a large spending package or cut taxes

• Increase the reserve requirement

Which statement is true about the relationship between fiscal and monetary policy?

• Fiscal policy has no real impact on the economy

• Monetary policy is only concerned with education

• They can sometimes work together in times of economic crisis

• They are the same thing