Monetary Policy Quiz

What happens to the money supply when the Federal Reserve buys government bonds?

• The money supply fluctuates randomly.

• The money supply increases.

• The money supply remains unchanged.

• The money supply decreases.

How does an increase in the discount rate affect the money supply?

• It makes borrowing more expensive for banks, decreasing the money supply.

• It makes borrowing cheaper for banks, increasing the money supply.

• It has no effect on the money supply.

• It causes the money supply to increase unpredictably.

What is the reserve requirement?

• The percentage of deposits banks must hold in reserve.

• The interest rate charged by the Federal Reserve.

• The amount of money banks can lend out.

• The total amount of money in circulation.

If the Federal Reserve lowers the reserve requirement, what is the likely effect on the money supply?

• The money supply will decrease.

• The money supply will become unstable.

• The money supply will increase.

• The money supply will remain the same.

Which of the following is NOT a tool used by the Federal Reserve to influence the money supply?

• Open market operations

• Taxation policies

• Discount rate

• Reserve requirement