AnswersIL-EconomicsMonetary Policy: The Federal Reserve

Monetary Policy: The Federal Reserve Answers

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1
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Federal Reserve interest federal fundsloan interest

A
Federal Reserve interest
B
federal funds
C
loan interest
2
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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
3

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.
5

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.
6

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
7

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.
8

Which best describes a central bank's primary role?

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

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
10

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
11

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
13

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.
14

What is a potential negative effect of an expansionary policy?

A
decreased borrowing
B
increased interest rates
C
increased inflation
D
decreased available credit
15

Which best describes a central bank's primary goals?

A
limiting inflation and reducing unemployment
B
reducing unemployment and maintaining cash flow
C
controlling stagflation and reducing unemployment
D
managing credit and ensuring the money supply's liquidity
16

[BLANK]

A
low
B
stable
C
high
17

In how many cities are Federal Reserve district banks located?

A
4
B
12
C
50
D
8
18

[BLANK]

A
Contractionary
B
Expansionary
C
Fixed
19

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.
20

Which statements describe how the Fed responds to high inflation? Check all that apply.It charges banks more interest.It pays banks less interest.It sells more securities.It decreases the money supply.It increases the money supply.

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.

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