Understanding the Federal Reserve and Interest Rates

What is the primary role of the Federal Reserve in the United States?

• To regulate international trade

• To directly influence the economy for the country's greater good

• To manage the country's fiscal policy

• To control the stock market

How can a change in interest rates affect the stock market?

• It stabilizes the stock market

• It only affects long-term investments

• It can cause significant swings and volatility

• It has no effect on the stock market

What is the purpose of expansionary monetary policy?

• To reduce government spending

• To decrease the money supply

• To stimulate the economy

• To increase inflation

During a recession, why might the Federal Reserve lower interest rates?

• To decrease inflation

• To increase the cost of borrowing

• To reduce the money supply

• To encourage more borrowing and spending

What effect does raising interest rates have during times of inflation?

• It increases the purchasing power of currency

• It causes prices to rise further

• It makes borrowing cheaper

• It reduces liquid capital in circulation