Federal Reserve Functions and Policies

This video, produced by the Georgia Department of Education, covers macroeconomic standards related to monetary policy, focusing on the Federal Reserve System. It explains the history and roles of the Federal Reserve, including its dual mandate to maximize employment and stabilize prices. The video details the tools used by the Federal Reserve to control the money supply, such as the reserve requirement, discount rate, open market operations, and interest on reserves. These tools influence economic growth, inflation, and interest rates, impacting consumer borrowing and spending.

What was one of the main reasons for the creation of the Federal Reserve System in 1913?

• To manage international trade agreements

• To centrally control the money supply

• To oversee agricultural production

• To regulate stock market activities

What is the primary goal of monetary policy?

• To promote international trade

• To increase government spending

• To control the amount of money in circulation

• To reduce taxes

How does a low reserve requirement affect banks?

• It restricts banks from making loans

• It allows banks to lend most of their deposits

• It forces banks to increase interest rates

• It reduces the banks' ability to hold assets

What is the discount rate?

• The interest rate the Federal Reserve charges the government

• The interest rate banks pay when borrowing from the Federal Reserve

• The interest rate banks charge customers for loans

• The interest rate banks charge each other for loans

What is the role of the Federal Reserve as the 'lender of last resort'?

• To finance public infrastructure projects

• To lend money to international organizations

• To offer loans to banks when no other options are available

• To provide loans to the government

What happens when the Federal Reserve buys treasury bonds?

• The money supply decreases

• The money supply increases

• The interest rates rise

• The money supply remains unchanged

What is the effect of selling treasury bonds by the Federal Reserve?

• It has no effect on the money supply

• It decreases the money supply

• It increases the money supply

• It lowers interest rates

What is the purpose of paying interest on reserves?

• To incentivize banks to hold excess reserves

• To reduce the discount rate

• To increase the reserve requirement

• To encourage banks to lend more

How does a high interest rate on reserves affect banks' behavior?

• Banks are incentivized to store excess reserves

• Banks are forced to lower their interest rates

• Banks are less likely to hold excess reserves

• Banks are more likely to lend out their reserves

What signal does the Federal Reserve send by setting a specific interest rate on reserves?

• It determines the reserve requirement

• It suggests the amount of reserves banks should hold

• It indicates the preferred lending rate for banks

• It sets the discount rate