Monetary Policy - Captain Fred

Front

In response to the increasing inflation from consumer spending, how should the Fed respond? Options: Tighten the money supply, Nothing, Loosen the money supply

Back

Tighten the money supply

Answer explanation

The Fed wants to tighten or bring down the money supply when there is inflation.

Front

In response to the inflationary winds blowing prices higher, what should the Fed do?

Back

Tighten money supply

Answer explanation

The Fed wants to tighten or bring down the money supply when there is inflation.

Front

In response to slowing business investment, what should the Fed do? Options: Tighten money supply, Nothing, Loosen money supply

Back

Loosen money supply

Answer explanation

A slower economy means the Fed wants to jumpstart the economy and try to encourage people to spend more money. This means they want to lower interest rates so borrowing is cheaper and people will be willing to buy more.

Front

Based on the increased government spending, what should the Fed do?

Back

Tighten the money supply

Answer explanation

The Fed wants to slow all the spending and is likely to want to tighten the money supply.

Front

What should the Fed do to counter higher unemployment?

Back

Loosen the money supply

Answer explanation

The Fed will want to lower interest rates to help encourage businesses and consumers to buy. This will help encourage companies to hire more people and lower unemployment.

Front

Which of the following tools could the Fed use to counter slow economic growth? Raise Discount Rate, Buy Open Market Securities, Raise the Reserve Requirement, Sell Open Market Securities

Back

Buy Open Market Securities

Answer explanation

The Fed is trying to jump start the economy by putting more money into the system. When the Fed buys bonds, it puts cash into the hands of banks. Banks will take that money and make more loans. This helps the economy grow.

Front

When economic growth is slow, what is the goal of the Federal Reserve?

Back

Decrease interest rates to make borrowing cheaper

Front

Too much money is in the system and the Fed wants to tighten the money supply. Which of the following tools could it use? Sell Open Market Securities, Lower the Discount Rate, Decrease the Reserve Requirement, Buy Open Market Securities

Back

Sell Open Market Securities

Answer explanation

When the Fed is trying to fight inflation, too much money in the economy, it will raise interest rates. The higher interest rates will increase borrowing and slow spending. This means lower demand and prices will slow their rise.

Front

Prices seem to be stable. What should the Fed do with the money supply?

Back

Nothing

Answer explanation

This is the goal where the Fed wants the economy to be. It should stay the course and not do anything!