Government and the Economy: Fiscal v Monetary Policy

What is the primary task of the Federal Reserve System?

• To control inflation and encourage full employment

• To print and distribute currency

• To set educational policies

• To manage national parks

What is the main way the Fed controls the money supply?

• By setting the national budget

• By controlling interest rates

• By regulating the stock market

• By printing money

What does the bank reserve requirement determine?

• The number of banks in a region

• The interest rates for student loans

• The CEO's salary

• The amount of money a bank can lend

What is fiscal policy?

• The guidelines for creating new money

• The process of electing Federal Reserve officials

• The government's ability to raise taxes and spend money

• The government's use of interest rates to regulate the economy

What role does the government play in fiscal policy?

• Setting educational standards

• Regulating private businesses directly

• Adjusting tax rates and government spending

• Controlling the distribution of currency

How do interest rates affect consumer behavior?

• Higher interest rates encourage more savings and less borrowing

• Lower interest rates result in decreased investment

• Interest rates have no impact on consumer behavior

• Higher interest rates lead to increased spending on luxury goods

If the Federal Reserve raises interest rates to combat rapid inflation, what might be a negative outcome?

• Unemployment rates would rise
• taxes will rise 
• The government would put a freeze on prices
• international trade would stop 

The Federal Reserve wants to reduce the nation's money supply. This could be accomplished by doing all of the following EXCEPT

• decreasing the discount rate.
• increasing the reserve requirement.
• selling securities on the open market.
• making banks hold a reserve for all types of deposits.

If the Federal Reserve System wanted to stimulate the U.S. economy and reduce unemployment, it would

• A. cause interest rates to decrease because low interest rates encourage businessgrowth and expansion
• B. cause interest rates to rise because high interest rates encourage business growthand expansion
• C. increase the discount rate it charges banks, which would increase the money supply
• D. increase consumer spending by reducing the money supply

When the Federal Reserve BUYS government bonds from banks it causes the money supply to ___________________.

• Increase

• Decrease