AnswersIL-EconomicsMonetary Policy: The Federal Reserve

5.5 Monetary Policy: The Federal Reserve Answers

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1
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best

l
limiting inflation and reducing unemployment
r
reducing unemployment and maintaining cash flow
c
controlling stagflation and reducing unemployment
m
managing credit and ensuring the money supply's liquidity
2
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The Fed’s use of open market operations affects banks’

i
interest rates.
m
money available to lend.
l
lending practices.
s
stability.
3

Why is the Fed often referred to as a “lender of last resort,” or the last lender to turn to in a crisis?

A
It lends consumers money when other banks will not.
B
It keeps all failing banks afloat to avoid economic disruption.
C
It helps finance and stabilize central banks internationally.
D
It offers banks financial protection to keep consumers from panicking.
4

What is a potential negative effect of an expansionary policy?

A
decreased borrowing
B
increased interest rates
C
increased inflation
D
decreased available credit
5

What is the full name of the US central bank, known as the Fed?

A
the Federal Reserve Bank
B
the Federal Deposit Insurance Corporation
C
the Federal Financial Institution
D
the Federal Bank
6

Which statements describe how the Fed responds to high inflation? Check all that apply.

A
It charges banks more interest.
B
It pays banks less interest.
C
It sells more securities.
D
It decreases the money supply.
E
It increases the money supply.
7

Federal Reserve interest federal fundsloan interest

A
Federal Reserve interest
B
federal funds
C
loan interest
8

Which best describes a central bank's primary role?

A
controlling inflation
B
increasing credit
C
printing money
D
creating monetary policy
9

Which of these is a banking activity of the Fed?

p
printing money
r
regulating securities markets
s
storing money for banks
f
funding government programs
10

Which best describes what a central bank uses monetary policy to do?

A
ensure that the government has a balanced budget
B
influence financial institutions globally
C
ensure that the government is sufficiently funded
D
steer the economy away from recession and toward growth
11

Which statement best describes how the Fed responds to recessions?

A
It sells more securities.
B
It charges banks more interest.
C
It increases reserve requirements.
D
It increases the money supply.
12

[BLANK]

A
low
B
stable
C
high
13

Why does the Fed pay interest to banks?

A
It is interest on money held in reserve.
B
It is interest on credit available to the Fed.
C
It is interest on loans taken by the Fed.
D
It is interest on government investments.
14

If the domino effect occurs as a result of changes in the money supply, what will most likely happen as an immediate result of banks having more money to lend?

A
Borrowing will decrease.
B
Interest rates will decrease.
C
Investing will decrease.
D
Inflation will decrease.
15

Which of these is a banking activity of the Fed?

A
printing money
B
regulating securities markets
C
storing money for banks
D
funding government programs
16

Which best describes what a central bank uses monetary policy to do?

A
ensure that the government has a balanced budget
B
influence financial institutions globally
C
ensure that the government is sufficiently funded
D
steer the economy away from recession and toward growth
17

Which statement best describes how the Fed responds to recessions?

A
It sells more securities.
B
It charges banks more interest.
C
It increases reserve requirements.
D
It increases the money supply.
18

If the domino effect occurs as a result of changes in the money supply, what will most likely happen as an immediate result of interest rates being increased?

A
Borrowing will decrease.
B
Investing will decrease.
C
Inflation will increase.
D
Liquidity will increase.
19

Which best describes a central bank's primary role?

A
controlling inflation
B
increasing credit
C
printing money
D
creating monetary policy
20

The Fed’s use of open market operations affects banks’

A
interest rates.
B
money available to lend.
C
lending practices.
D
stability.

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