Question 1

Monetary policy may be defined as&#10;A) a policy designed to increase or decrease the flow of money and credit.&#10;B) a policy designed to increase or decrease the ability of consumers to spend money.&#10;C) a policy designed to increase the convertibility of paper money into gold.&#10;D) a policy designed to develop money that is more resistant to counterfeiters.

Accepted Answer

Monetary policy is a set of tools and strategies used by governments and central banks to manage the supply, availability, and cost of money and credit in an economy. Its aim is to stabilize prices, control inflation, and stimulate economic growth. Therefore, option A is the most appropriate definition of monetary policy.

Question 2

The central bank of the United States is called&#10;A) the Bank of America.&#10;B) the U.S. Bank.&#10;C) the Central Bank of the United States.&#10;D) the Federal Reserve.

Accepted Answer

The correct name of the central bank of the United States is the Federal Reserve System. However, it is commonly referred to as the Federal Reserve or simply "the Fed." Neither A nor B are correct names for the central bank of the United States, and C is a generic name that does not accurately reflect the institution's function or purpose.

Question 3

The Board of Governors of the Federal Reserve are&#10;A) appointed for life like Supreme Court Justices.&#10;B) elected by the governors of the 50 states.&#10;C) appointed by the Senate and confirmed by the Supreme Court.&#10;D) appointed by the President and confirmed by the Senate.

Accepted Answer

The Board of Governors of the Federal Reserve are appointed by the President of the United States and confirmed by the Senate.

Question 4

Monetary policy is conducted by&#10;A) the Banking Committee of Congress.&#10;B) the President's Council of Economic Advisers.&#10;C) the Federal Open Market Committee.&#10;D) Chamber of Commerce.

Accepted Answer

Monetary policy in the United States is conducted by the Federal Reserve System, specifically the Federal Open Market Committee (FOMC). The FOMC is made up of seven members of the Federal Reserve Board and five Reserve Bank presidents, and they are responsible for setting monetary policy in order to maintain price stability and promote economic growth. The Banking Committee of Congress and the President's Council of Economic Advisers may have some influence over monetary policy, but they do not conduct it directly. The Chamber of Commerce is a private organization and does not have any role in conducting monetary policy.

Question 5

The function of the Federal Deposit Insurance Corporation is to&#10;A) conduct monetary policy.&#10;B) issue new currency and coin.&#10;C) insure loans made by members of Congress.&#10;D) insure bank deposits.

Accepted Answer

The Federal Deposit Insurance Corporation (FDIC) is a government agency that provides insurance for bank deposits. It was created in 1933 as a response to the widespread bank failures during the Great Depression. The FDIC insures deposits up to a certain amount, which gives consumers confidence that their money is safe in a bank. This helps promote stability in the banking system and protects consumers from losing their savings due to bank failures.

Question 6

The Federal Reserve makes loans to individual banks at an interest rate&#10;A) called the federal funds rate.&#10;B) called the discount rate.&#10;C) called the prime rate.&#10;D) called the rate of last resort.

Accepted Answer

The Federal Reserve makes loans to individual banks through its Discount Window program at an interest rate called the discount rate.

Question 7

During a recession, the Federal Reserve may try to lower interest rates by&#10;A) increasing the required reserve ratio.&#10;B) selling government bonds to banks or individuals.&#10;C) buying government bonds from banks or individuals.&#10;D) sending directives to bank officials.

Accepted Answer

During a recession, the Federal Reserve may try to lower interest rates by buying government bonds from banks or individuals. This process is called open market operations, and it involves the Fed purchasing government bonds from banks and other financial institutions. This injection of cash into the banking system can then be used to make loans to individuals and businesses, stimulating economic activity and lowering interest rates. Increasing the required reserve ratio would have the opposite effect, as it would require banks to hold onto more of their funds and reduce their lending activity. Selling government bonds would also have the opposite effect, as it would decrease the amount of available funds in the banking system and raise interest rates. Sending directives to bank officials would not be a direct way to lower interest rates.

Question 8

During inflationary periods, the Federal Reserve can be expected to&#10;A) try to lower interest rates.&#10;B) try to raise interest rates.&#10;C) try lend more reserves to banks.&#10;D) try to lower the required reserve ratio.

Accepted Answer

During inflationary periods, the Federal Reserve typically tries to raise interest rates to decrease the money supply and reduce aggregate demand. By raising interest rates, borrowing becomes more expensive and consumers and businesses are less likely to spend or invest, leading to a decrease in demand pressure on prices.

Question 9

The interest rate that banks charge each other for overnight loans is called&#10;A) the prime rate.&#10;B) the federal funds rate.&#10;C) the discount rate.&#10;D) the penalty rate.

Accepted Answer

The interest rate that banks charge each other for overnight loans is called the federal funds rate. This rate is determined by the supply and demand of reserves in the banking system and is used as a benchmark for other interest rates, such as the prime rate and consumer loans. The discount rate is the interest rate at which banks can borrow funds directly from the Federal Reserve, and the penalty rate is a higher interest rate charged to borrowers who default on their loans.

Question 10

How do taxes affect income inequality?&#10;A) Taxes have no effect on income inequality.&#10;B) Taxes tend to reduce income inequality, because only about 40% of taxes are progressive.&#10;C) Taxes tend to increase income inequality, because only about 40% of taxes are regressive.&#10;D) Taxes tend to reduce income inequality, because only about 40% of taxes are proportional.

Accepted Answer

The answer of How do taxes affect income inequality?&#10;A) Taxes...

Deck 15: Monetary Policy, Financial Regulation, and Debates Over Monetary Policy