Practice Test - Monetary and Fiscal Policy

The agency responsible for regulating the money supply in the United States is

• the President of the United States

• the U.S. Treasury

• the Secretary of the Treasury

• the Federal Reserve

All of the following are true about the Federal Reserve EXCEPT

• the Federal Reserve is overseen by a seven-member Board of Governors

• the Federal Reserve is headquartered in New York City

• the Board of Governors are appointed by the President of the U.S.

• the Fed committee is referred to as the Federal Open Market Committee

The Federal Reserve has three tools at their disposal. Which of the following is NOT a tool of monetary policy?

• open-market operations

• changes in reserve requirements

• changes in interest rates

• changes to foreign policy

If the Fed wanted to increase the money supply, it would most likely make open market

• purchases of bonds from the banks

• sales of bonds or lower the discount rate.

• raise the discount rate.

• sales or raise the discount rate.

The amount of money that the Federal Reserve charges for loans to member banks is the

• discount rate

• required reserve ratio

• federal funds rate

• money multiplier

The amount of money that banks charge to each other for loans is the

• discount rate

• required reserve ratio

• federal funds rate

• money multiplier

When the Fed sells bonds, their action

• increases the money supply.

• decreases the money supply.

• increases excess reserves in the banking system.

• reduces interest rates.

When the Fed buys bonds, which of the following occurs?

• the money supply increases and interest rates increase.

• the money supply increases and interest rates decrease.

• the money supply decreases and interest rates decrease.

• the money supply decreases and interest rates stay the same.

What type of policy does the Federal Reserve use to counteract an expansion that is causing high inflation?

• fiscal policy

• contractionary money policy

• expansionary money policy

• reduced policy lags

If the Federal Reserve raises the required reserve ratio from 10 percent to 20 percent, which of the following would occur?

• This would increase the amount the bank can loan.

• It would decrease the amount each bank would be able to loan.

• Have little to no impact on the amount the bank can loan

• Impacts only small commercial banks within the banking system.