Federal Reserve Interest on Reserves

The video discusses the new Reserve Market graph and how the Federal Reserve (FED) controls the monetary supply using interest on reserves. With ample reserves, traditional tools like open market operations are less effective. Instead, the FED adjusts the interest on reserves to influence banks' lending behaviors. Lowering the interest encourages banks to lend more, while increasing it encourages them to hold reserves. The video also highlights the challenges posed by inflation, which complicates the FED's efforts to manage the economy.

What is the primary reason for the shift from limited to ample reserves?

• The FED's decision to increase interest rates.

• The removal of the required reserve by the FED.

• A decrease in the money supply.

• The introduction of new currency notes.

Which of the following is NOT a traditional tool of monetary policy?

• Interest on reserves

• Required reserve

• Discount rate

• Open market operations

How does the FED use interest on reserves to influence monetary policy?

• By setting a fixed exchange rate.

• By printing more money.

• By adjusting the interest rate paid to banks.

• By changing the currency design.

What happens when the FED lowers the interest on reserves?

• Banks face higher taxes.

• Banks are encouraged to lend more.

• Banks are discouraged from lending.

• Banks are encouraged to keep money with the FED.

What is the effect of increasing the interest on reserves?

• It has no effect on banks' behavior.

• It encourages banks to deposit money with the FED.

• It encourages banks to lend more.

• It discourages banks from depositing money with the FED.

What happens to the money supply when the FED lowers the interest on reserves?

• The money supply remains unchanged.

• The money supply decreases.

• The money supply is unaffected by interest rates.

• The money supply increases.

Why is the FED finding it challenging to adjust interest rates currently?

• Due to a lack of reserves.

• Because of high inflation rates.

• Due to a surplus of currency notes.

• Because of low demand for loans.

What is the intended effect of discouraging lending by the FED?

• To decrease price levels and inflation.

• To boost economic growth.

• To increase inflation.

• To increase the money supply.

What is the current challenge with using interest on reserves as a tool?

• It requires a high reserve requirement.

• Inflation is reducing the value of money.

• It is ineffective due to low inflation.

• It is not recognized by banks.

What is the relationship between interest on reserves and inflation?

• Higher interest on reserves leads to higher inflation.

• Lower interest on reserves leads to higher inflation.

• Interest on reserves has no impact on inflation.

• Interest on reserves directly controls inflation.