AnswersPMHS Civics Q2Fiscal Policy

Monetary Policy: The Federal Reserve Answers

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1
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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
2
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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.
3

Which statement describes how borrowers will most likely benefit when the Fed reduces reserve requirements?

A
Loan requirements will likely be relaxed.
B
Interest rates will likely decrease.
C
Housing prices will likely decrease.
D
Investment opportunities will likely improve.
4

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

A
interest rates.
B
money available to lend.
C
lending practices.
D
stability.
5

Economists studying the money supply categorize the status of the money based on

A
interest rates.
B
liquidity.
C
inflation rates.
D
credit.
6

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.
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

[BLANK]

A
Federal Reserve interest
B
federal funds
C
loan interest
9

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.
10

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.

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