AnswersMO-EconomicsMonetary Policy: The Federal Reserve

Monetary Policy: The Federal Reserve Answers

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1
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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.
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.
4

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
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.
7

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

A
interest rates.
B
money available to lend.
C
lending practices.
D
stability.
8

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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