Monetary Policy Review 1

What is monetary policy?

• Lending to foreign countries when they need money

• Holding deposits for commercial banks to facilitate the payment system.

• Taxing and spending decisions made by The Fed.

• Changing the money supply to improve the economy.

Which of the following correctly describes the organization of the Fed, from the top down?

• Board of Governors, Regional Reserve Banks, Congress, Member Banks

• Board of Governors, FOMC, Member Banks, Regional Reserve Banks

• Member Banks, Regional Banks, FOMC, Board of Governors

• Board of Governors, FOMC, Regional Reserve Banks, Member Banks

According to the Dual Mandate, what are the two goals of monetary policy?

• Price stability

• Increase taxes

• To Stabilize the payment system

• Full Employment

• Decrease taxes

Which of the following are tools of monetary policy? Select ALL that apply

• Reserve Requirement

• Government Taxes

• Interest on Reserves

• Discount Rate

• Open Market Operations

When does the Fed use contractionary monetary policy? What impact does this have on the money supply?

• To fight unemployment; money supply increases

• To fight inflation; money supply increases

• To fight unemployment; money supply decreases

• To fight inflation; money supply decreases

How are the tools used when the Fed uses contractionary monetary policy?

• Lower RR, Lower IR, Lower DR, Buy bonds

• Raise RR, Lower IR, Raise DR, Sell bonds

• Raise RR, Raise IR, Raise DR, Buy bonds

• Raise RR, Raise IR, Raise DR, Sell bonds

When would the Fed use expansionary monetary policy? What impact does this policy have on the money supply?

• During an inflationary period; money supply increases

• To fight high inflation; money supply decreases

• During a recession with a high unemployment rate; money supply increases

• To fight seasonal unemployment rate; money supply decreases

How are the tools used when the Fed uses expansionary monetary policy?

• Raise RR, Lower IR, Raise DR, Sell bonds

• Lower RR, Lower IR, Lower DR, Buy bonds

• Raise RR, Raise IR, Raise DR, Buy bonds

• Raise RR, Raise IR, Raise DR, Sell bonds

If the Fed wants to speed up the economy, what monetary policy will it use?

• Expansionary

• Contractionary

If the Fed wants to slow down the economy, what monetary policy will it use?

• Expansionary

• Contractionary