AnswersMO-EconomicsMonetary Policy: The Federal Reserve

Monetary Policy: The Federal Reserve Answers

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1
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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.
2
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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
3

When the Fed adjusts its interest rate, it directly influences consumer

A
saving.
B
spending.
C
borrowing.
D
investing.
4

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
5

In how many cities are Federal Reserve district banks located?

A
4
B
12
C
50
D
8
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

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.
8

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

A
interest rates.
B
money available to lend.
C
lending practices.
D
stability.
9

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.
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

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