Monetary Policy Practice

What is the role of the Federal Open Market Committee? It collects information about each Federal Reserve District and reports on economic conditions to the Board of Governors. Composed of seven members appointed by the President, it oversees the Federal Reserve System. It redraws the map of the twelve Federal Reserve Districts every ten years in response to economic changes. It makes key decisions about interest rates and the growth of the United States money supply. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

fiscal policy easy money policy tight money policy policy lags What type of policy does the Federal Reserve use to counteract an expansion that is causing high interest rates? fiscal policy easy money policy tight money policy policy lags 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

It would cause the money supply to contract. What effect would an increase in the discount rate have on the money supply? 10 It would cause the money supply to contract. It would increase the money multiplier. It would cause the money supply to expand It would have no effect on the money supply. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

What is the relationship between interest rates and demand for money? 10 What is the relationship between interest rates and demand for money? As interest rates decrease, demand for money increases. As interest rates increase, demand for money increases. Interest rates are determined by demand for money. Interest rates and demand for money are unrelated. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Which of these is most likely to cause the Fed to introduce a tight money supply? A recession has reduced aggregate demand and increased unemployment. The federal government passes a new budget with a large deficit. The economy is prosperous with relatively low inflation and low unemployment. The economy is expanding quickly and inflation is a concern. 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Reduce the discount rate Raise the required amount of reserve How could the Federal Reserve encourage banks to lend out more of their reserves? Reduce the discount rate Raise the required amount of reserve Increase the prime rate Reduce the money supply 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

As commercial banks keep more excess reserves, money creation Increases Decreases Remains the same Could either increase or decrease 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Which is not used by the Federal Reserve to change the money supply? The discount rate The required reserve ratio The federal tax code Open market operations 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

The most used instrument for controlling week-to-week changes in the money supply is The required reserve ratio The money multiplier Open market operations The discount rate 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Establish monetary policy Establish fiscal policy The main function of the Federal Reserve System in the US Economy is to Establish monetary policy Establish fiscal policy Establish trade policy Balance the federal budget 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

In which situation might the Federal Reserve buy government securities and lower the discount rate? 10 In a recession When the inflation rate is too high When aggregate demand is too high When the economy is expanding 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Which gov’t institution regulates the money supply of the US economy? The United States Treasury The United States Mint The Federal Reserve System The Securities and Exchange Commission 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

To supply cash withdrawals To endure business investment Why does the Fed require banks to keep a percentage of their funds as reserves? To buy bonds To balance the budget To supply cash withdrawals To endure business investment 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

The Federal Reserve System is made up of 10 The president, Congress, and the Cabinet The Internal Revenue Service and the Office of Management and Budget 12 banks in different regions of the US and the Federal Open Market Committee All banks, savings and loans, and credit unions in the US 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

How is monetary policy different from fiscal policy? 10 Monetary policy involves the money supply, while fiscal policy involves government taxing and spending decisions Fiscal policy involves the money supply, while monetary policy involves government taxing and spending decisions Fiscal policy involves specific steps taken to carry out the overall monetary policy They are the same 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30