Unit 6 Review: Monetary & Fiscal Policy

During a class discussion, Abigail asked her teacher about the main role of the Federal Reserve in the economy. What is the primary purpose of the Federal Reserve?

• Regulating international trade

• Controlling inflation

• Providing insurance for bank deposits

• Regulating stock markets

Which of the following is not a responsibility of the Federal Reserve?

• Setting interest rates

• Supervising financial institutions

• Collecting federal taxes

• Maintaining financial stability

What are the two primary objectives of the Federal Reserve's dual mandate?

• Ensuring maximum employment and price stability

• Managing interest rates and controlling inflation

• Overseeing the banking system and maintaining economic growth

• Facilitating government borrowing and regulating foreign exchange

During a classroom discussion, Aiden asked how the Federal Reserve aims to achieve its dual mandate. What was the teacher's response?

• By adjusting the money supply

• By setting fiscal policy

• By regulating international trade

• By issuing executive orders

What is the likely impact on the money supply if the Federal Reserve decides to increase both the Reserve Requirement and the Discount Rate?

• Increase

• Decrease

• No change

• It depends on other factors

What is one method the Federal Reserve uses to control inflation?

• Decreasing the money supply

• Lowering taxes

• Adjusting the federal funds rate

• Subsidizing exports

Isla is studying economics and wants to understand what the federal funds rate is. Can you help her?

• The interest rate banks charge each other for loans

• The interest rate on government bonds

• The rate at which the Federal Reserve lends money to commercial banks

• The rate of inflation as measured by the Consumer Price Index (CPI)

Abigail is studying different monetary policies in her economics class. She learns that one of the policies aims to stimulate economic growth by making borrowing cheaper. Which of the following is an example of this expansionary monetary policy?

• Increasing reserve requirements

• Selling government securities (bonds)

• Decreasing the federal funds rate

• Raising taxes

Samuel is studying the effects of different monetary policies on the economy. What effect does a contractionary monetary policy have on the economy?

• Slows down economic growth

• Stimulates economic growth

• Reduces unemployment

• Increases inflation

What mechanism does the Federal Reserve use to influence the Federal Funds rate?

• The Federal Reserve sets the FFR directly through legislation

• The Federal Reserve adjusts the interest rates that act as price floors & price ceilings to guide the FFR

• The FOMC submits a proposal to Congress for approval

• The Federal Reserve implements fiscal policies to modify government expenditure