The Federal Reserve

Monetary Policy is responsible for doing what in our economy

• Printing money and giving to banks

• Increasing or decreasing the money supply 

• Avoiding runs on banks

• Regulating commercial banks

What is an interest rate?

• A percentage of the amount of interest people have in the bank's monetary fund

• The amount of money you borrow

• A percentage of the principal meant to cover inflation and bring the bank profit. (the cost of money)

True or False? When interest rates are low, borrowers borrow less and therefore spend less.

• True

• False

If the Federal Reserve wants to reduce interest rates, what will they do to the money supply?

• Decrease the Money Supply

• Increase the Money Supply

What is a negative consequence of reducing inflation through Contractionary Monetary Policy?

• Interest Rates Decrease

• Aggregate Demand Increases

• Employment Increases

• Unemployment Increases

What is the most liquid asset?

• Cash money

• Stocks and mortgages 

• A bond or loan 

If someone deposits $15,000 into the bank and the reserve requirement is 10%, how much does the bank have to keep at the bank?

• $100

• $150

• $1,000

• $1,500

The interest rate that the Federal Reserve charges commercial banks to borrow money is called

• Federal Open Market Committee (FOMC)

• Discount Rate

• Borrowing Rate

• Annual Percentage Rate (APR)

What tool does the Federal Reserve most commonly use to change the money supply 

• Open Market Operations

• increasing or decreasing the discount rate

• increasing or decreasing the reserve requirement

What's a danger of adding a lot of made up money to the economy?

• Prices will inflate (rise)

• There is no danger

• Prices will deflate (decrease)