Monetary Policy and the Federal Reserve Quiz

What is the primary job of the Federal Reserve?

• To regulate state taxes

• To oversee commercial banks and conduct monetary policy

• To manage the stock market

• To create fiscal policy

What does an interest rate represent?

• The total amount borrowed

• The price of borrowing money

• The rate of inflation

• The savings rate

What happens when interest rates are low?

• Borrowers find it harder to pay back loans

• Borrowers are more likely to borrow and spend

• Banks lose money

• The economy contracts

What is Expansionary Monetary Policy?

• Decreasing the money supply to raise interest rates

• Increasing the money supply to lower interest rates

• Increasing taxes to slow down spending

• Reducing government spending

Which of the following was a consequence of Contractionary Monetary Policy in the late 1970s?

• Increased borrowing

• Rising inflation

• Higher unemployment

• Economic growth

What is Fractional Reserve Banking?

• A method for banks to increase profits

• A system where banks hold a portion of deposits and loan the rest

• A way to decrease interest rates

• A policy that increases taxes on deposits

How does the Fed increase the money supply through Open Market Operations?

• By selling government bonds

• By buying government bonds

• By raising interest rates

• By decreasing the reserve requirement

What is Quantitative Easing (Q.E.)?

• A method to increase taxes

• Buying long-term assets to inject money into the economy

• A strategy for reducing interest rates

• Selling treasury bills to decrease liquidity

What are financial intermediaries?

• Institutions that create money

• Institutions that facilitate the channeling of funds between savers and borrowers

• Institutions that regulate interest rates

• Institutions that only provide loans

What is a national bank?

• A bank that operates internationally

• A bank chartered and regulated by the federal government

• A bank that only deals with foreign currency

• A bank that is privately owned