Question 1

The Federal Reserve has the power to issue money,but does not influence interest rates.

Accepted Answer

The Federal Reserve influences interest rates through open market operations and other tools.

Question 2

One of the goals of monetary policy is to make sure that the inflation rate and the overall rate of growth in the economy are the same.

Accepted Answer

There is no need to ensure that the inflation rate and the economic growth rate are the same.

Question 3

Which of the following is not one of the three purposes served by money?
A) Serving as a medium of exchange.
B) Serving as a store of value.
C) Providing a means for regulators to track economic activity.
D) Providing a standard of value.

Accepted Answer

Money serves three purposes-a medium of exchange, a store of value, and a standard of value.

Question 4

The Fed's control over interest rates,direct lending to financial institutions,and other policy tools is called
A) fiscal policy.
B) monetary policy.
C) discount policy.
D) margin controls.

Accepted Answer

Monetary policy is the Federal Reserve's use of interest rates, direct lending to financial institutions, and other policy tools to influence the economy and support the financial system.

Question 5

Generally,if the inflation rate is too high,the Federal Reserve will want to raise the federal funds rate.

Accepted Answer

Raising the federal funds rate will tend to lower the money supply and lower the inflation rate.

Question 6

When the Federal Reserve makes more money available for banks to lend,the demand curve for loans shifts to the right.

Accepted Answer

When the Federal Reserve makes more money available for banks to lend, the supply curve for loans shifts to the right.

Question 7

One of the advantages of monetary policy over fiscal policy is that
A) monetary policy must be approved by Congress, which prevents bad monetary policy from taking effect.
B) monetary policy does not produce inflation, whereas fiscal policy does.
C) the Fed can react more quickly than the legislature can.
D) monetary policy allows the Fed to limit government spending so that government budget deficits are reduced.

Accepted Answer

The legislature must go through a time-consuming policy-making process, whereas the Fed can meet and decide immediately if necessary.

Question 8

Which one of the following is among the Federal Reserve's tools to control short-term interest rates?
A) Open market operations.
B) Raising or lowering taxes on financial institutions.
C) Limits on credit card interest rates.
D) Controlling the demand for money.

Accepted Answer

See the definition of open market operations.

Question 9

The Fed's response to the housing crisis of 2007 and 2008 was to
A) encourage discount window borrowing.
B) reduce taxes on financial institutions.
C) raise the federal funds rate.
D) raise the reserve requirement.

Accepted Answer

The Fed created new avenues to lend to banks and encouraged banks to use the Fed's lender of last resort function, including the discount window.

Question 10

Lowering the federal funds rate will tend to reduce the overall price level in the economy.

Accepted Answer

Lowering the federal funds rate will tend to raise the money supply and raise the price level.

Question 11

Inflation targeting is a policy in which the Fed
A) announces an inflation target and then runs monetary policy to hit that target.
B) tries to reduce inflation by setting a low federal funds rate target.
C) tries to reduce inflation by setting a high federal funds rate target.
D) uses open market operations as a method of discretionary intervention, increasing the money supply when there is a recession, and decreasing it when there is an unsustainable economic expansion.

Accepted Answer

See the definition of inflation targeting.

Question 12

The discount window allows the Fed to lend money to financial institutions that are running short of funds.

Accepted Answer

The Federal Reserve serves as a lender of last resort for banks in need of funds.

Question 13

The Federal Reserve's most-used policy tool is open market operations,which control short-term interest rates.

Accepted Answer

Open-market operations are commonly used because they are flexible and can be used for small adjustments in interest rates.

Question 14

The Fed's margin requirements control
A) how much people can borrow when they buy stock.
B) the amount of reserves banks must keep in cash or in their accounts with the Federal Reserve.
C) the federal funds rate.
D) the interest rate banks are allowed to pay on demand deposit accounts.

Accepted Answer

See the definition of margin requirements.

Question 15

When financial institutions borrow from the Federal Reserve,this is called
A) borrowing on margin.
B) fiscal policy.
C) open market operations.
D) going to the discount window.

Accepted Answer

See the definition of the discount window.

Question 16

The current chairman of the Federal Reserve Board is
A) Alan Greenspan.
B) Paul Volcker.
C) Ben Bernanke.
D) Morgan Stanley.

Accepted Answer

The current chairman of the Federal Reserve Board is Ben Bernanke.

Question 17

When the Federal Reserve acts as a lender of last resort,it is making sure that banks have the money they need to continue to operate.

Accepted Answer

Banks in trouble can borrow from the Federal Reserve.

Question 18

The Federal Reserve is under the ultimate direction of the Congress of the United States because Congress can cut the budget of the Federal Reserve if the Federal Reserve Board of Governors does not follow the instructions of Congress.

Accepted Answer

The Federal Reserve is financially self-sustaining and is independent from Congress.

Question 19

Which of the following would be the result of increasing the money available for banks to lend?
A) An increase in the reserve requirement.
B) An increase in the discount rate.
C) A decrease in the federal funds rate.
D) A decrease in the Fed's holdings of U.S. Treasury securities.

Accepted Answer

Expanding the money supply puts downward pressure on interest rates.

Question 20

The current chairman of the Federal Reserve is Alan Greenspan.

Accepted Answer

The current chairman is Ben Bernanke.

Quiz 12: Monetary Policy

The Federal Reserve has the power to issue money,but does not influence interest rates.

One of the goals of monetary policy is to make sure that the inflation rate and the overall rate of growth in the economy are the same.

Which of the following is not one of the three purposes served by money?

The Fed's control over interest rates,direct lending to financial institutions,and other policy tools is called

Generally,if the inflation rate is too high,the Federal Reserve will want to raise the federal funds rate.

When the Federal Reserve makes more money available for banks to lend,the demand curve for loans shifts to the right.

One of the advantages of monetary policy over fiscal policy is that

Which one of the following is among the Federal Reserve's tools to control short-term interest rates?

The Fed's response to the housing crisis of 2007 and 2008 was to

Lowering the federal funds rate will tend to reduce the overall price level in the economy.

Inflation targeting is a policy in which the Fed

The discount window allows the Fed to lend money to financial institutions that are running short of funds.

The Federal Reserve's most-used policy tool is open market operations,which control short-term interest rates.

The Fed's margin requirements control

When financial institutions borrow from the Federal Reserve,this is called

The current chairman of the Federal Reserve Board is

When the Federal Reserve acts as a lender of last resort,it is making sure that banks have the money they need to continue to operate.

The Federal Reserve is under the ultimate direction of the Congress of the United States because Congress can cut the budget of the Federal Reserve if the Federal Reserve Board of Governors does not follow the instructions of Congress.

Which of the following would be the result of increasing the money available for banks to lend?

The current chairman of the Federal Reserve is Alan Greenspan.