Monetary Policy Quiz

Which organization manages the money supply in the United States?

• The World Bank

• The Federal Reserve

• The International Monetary Fund

• The United Nations

What is the discount rate?

• The interest rate banks charge each other

• The interest rate the Federal Reserve charges banks for short-term loans

• The interest rate consumers pay for mortgages

• The interest rate on credit cards

What happens when the discount rate increases?

• Borrowing becomes cheaper

• Borrowing becomes more expensive

• Inflation decreases

• The economy grows faster

What effect does lowering the reserve requirement have?

• Decreases the money supply

• Increases the money supply

• Reduces inflation

• Increases taxes

What is the effect of purchasing government securities during an economic downturn?

• Increases interest rates

• Stimulates borrowing and spending

• Reduces the money supply

• Causes deflation

What is the most frequently used tool in monetary policy?

• Discount rate

• Reserve requirement

• Open market operations

• Taxation

What happens when interest rates are higher?

• Encourages borrowing

• Discourages people from taking out loans

• Increases inflation

• Reduces savings

What is the effect of increasing the reserve requirement?

• Increases the money supply

• Decreases the money supply

• Reduces interest rates

• Encourages spending

What does the Federal Reserve rarely change?

• Discount rate

• Reserve requirement

• Open market operations

• Tax rates

What action should be taken with the discount rate to stimulate the economy?

• Increase the discount rate

• Decrease the discount rate

• Keep the discount rate constant

• Eliminate the discount rate