Quiz on The Fed's Tools of Monetary Control

How does the Fed influence the quantity of reserves?

• By changing the quantity of reserves through tax policies

• By changing the quantity of reserves through open-market operations or lending to banks

• By changing the quantity of reserves through foreign exchange operations

• By changing the quantity of reserves through stock market interventions

What is the primary tool of monetary policy that the Fed uses most often?

• Tax policies

• Foreign exchange operations

• Stock market interventions

• Open-market operations

How does the Fed alter the money supply by changing the discount rate?

• A higher discount rate increases the money supply

• A lower discount rate decreases the money supply

• A higher discount rate decreases the money supply

• A lower discount rate increases the money supply

What is the purpose of the Fed lending to banks?

• To control the money supply only

• To regulate the stock market

• To help financial institutions in distress only

• Both to control the money supply and to help financial institutions in distress

How does an increase in reserve requirements affect the money supply?

• Increases the money supply

• Decreases the money supply

• Stabilizes the money supply

• Has no impact on the money supply

What tool does the Fed use to influence the reserve ratio by paying banks interest on reserves?

• Stock market interventions

• Foreign exchange operations

• Tax policies

• Paying interest on reserves

What was the Fed's response to the stock market crash in 1987?

• Reduced interest rates

• Implemented foreign exchange operations

• Provided liquidity support to financial institutions

• Increased taxes

How does the Fed influence the reserve ratio through regulating reserve requirements?

• By decreasing reserve requirements to stabilize the money supply

• By increasing reserve requirements to increase the money supply

• By decreasing reserve requirements to increase the money supply

• By increasing reserve requirements to decrease the money supply

What is the impact of banks holding excess reserves on the effectiveness of changing reserve requirements?

• Stabilizes the effectiveness

• Increases the effectiveness

• No impact on the effectiveness

• Decreases the effectiveness

When did the Fed start paying interest on reserves?

• In 2008

• In 2010

• In 2009

• In 2007