Understanding Monetary and Fiscal Policies

What is the primary strategy of monetary policy?

• Regulating the supply of money

• Increasing government spending

• Selling government bonds

• Taxing and spending decisions

What does fiscal policy primarily involve?

• Setting the federal funds rate

• Taxing and spending decisions by public officials

• Regulating the supply of money

• Buying and selling government securities

What is the reserve requirement?

• The percentage of deposits banks must hold in reserve

• The interest rate for loans between banks

• The rate at which banks lend to the Federal Reserve

• The total amount of money in circulation

What is the federal funds rate?

• The rate at which the government borrows from the Federal Reserve

• The interest rate set by the Federal Reserve for loans to commercial banks

• The rate banks charge each other for overnight loans

• The percentage of deposits banks must hold in reserve

What are open market operations?

• The process of setting the reserve requirement

• The Federal Reserve's practice of buying and selling government bonds

• The method of determining the federal funds rate

• The strategy for adjusting the discount rate

What is the purpose of an easy money policy?

• To put more money into the economy

• To increase the reserve requirement

• To sell securities on the open market

• To counteract inflation

What does the Federal Open Market Committee (FOMC) oversee?

• The buying and selling of government securities (bonds)

• Setting the reserve requirement

• Determining fiscal policy

• Regulating currency exchange rates

What is the goal of contractionary fiscal policy?

• To counteract inflation

• To decrease taxes

• To increase government spending

• To deal with unemployment

What is the discount rate?

• The interest rate for consumer loans

• The rate at which banks lend to each other

• The target interest rate for the economy

• The interest rate the Federal Reserve charges commercial banks

What characterizes supply side fiscal policy?

• Increasing taxes to reduce inflation

• Decreasing government spending and taxes to increase aggregate supply

• Buying securities to put money into the economy

• Increasing the reserve requirement to control money supply