MONETARY POLICY

Which tool is primarily used by the Fed in day-to-day operations to manage the money supply?

• Changing the discount rate.

• Conducting open market operations.

• Adjusting the reserve requirement.

• Issuing new currency.

What is the discount rate?

• The interest rate that commercial banks charge their customers

• The interest rate the Fed charges when lending to banks.

• The interest rate banks apply when purchasing government bonds.

• The interest rate for international loans.

What is the primary role of reserve requirements set by the Federal Reserve?

• To determine the interest rates banks charge on loans.

• To control the percentage of deposits banks must keep in reserve.

• To regulate the amount of cash banks hold for daily transactions.

• To set the maximum limit for bank loans

What happens to the money supply when the Federal Reserve increases reserve requirements?

• The money supply increases because banks have more money to lend.

• The money supply decreases because banks have to hold more money in reserve.

• The money supply remains unchanged as banks adjust their lending rates

• The money supply becomes unstable due to increased cash withdrawals.

What is monetary policy?

• Government tax policy

• Central bank actions and communications that manage the money supply

• Government actions and communications to stimulate economic growth

• International trade policy

What is the most important objective of monetary policy?

• Economic recession

• Reducing unemployment

• Managing inflation

• Increasing interest rates

The monetary policy measures used by a central bank to control the money supply include:

• Using only interest rates

• Using only open market instruments

• Using both interest rates and open market instruments

When a central bank increases interest rates, what effect does this have on the money supply?

• Increases the money supply

• Decreases the money supply

• Does not affect the money supply

What is the primary goal of an expansionary monetary policy?

• To reduce inflation

• To increase unemployment

• To boost economic growth

• To decrease government spending

Which of the following actions is typically associated with a restrictive monetary policy?

• Lowering interest rates

• Increasing the money supply

• Raising interest rates

• Reducing taxes