Pretest

Question 1

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

Revolt · Accepted Answer

borrowing.

Question 2

Why does the Fed pay interest to banks?

Revolt · Accepted Answer

It is interest on money held in reserve.

Question 3

What is a potential negative effect of an expansionary policy?

Revolt · Accepted Answer

increased inflation

Question 4

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

Revolt · Accepted Answer

It offers banks financial protection to keep consumers from panicking.

Question 5

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?

Revolt · Accepted Answer

Borrowing will decrease.

Question 6

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

Revolt · Accepted Answer

money available to lend.

Question 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 banks having more money to lend?

Revolt · Accepted Answer

Interest rates will decrease.

Question 8

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

Revolt · Accepted Answer

the Federal Reserve Bank

Question 9

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

Revolt · Accepted Answer

steer the economy away from recession and toward growth

Question 10

Which of these is a banking activity of the Fed?

Revolt · Accepted Answer

storing money for banks

Pretest Answers

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