Federal Reserve and Money Supply Regulation
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Federal Reserve and Money Supply Regulation

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Questions and Answers

What is the primary objective of the Federal Reserve in regulating the money supply?

To maintain a stable economy

What is the effect of an increase in the money supply on interest rates?

It lowers interest rates

What is the term used by the Federal Reserve to refer to the money supply in its public releases?

Money stock

What is the consequence of too much money flowing in the economy?

<p>Inflation</p> Signup and view all the answers

What is the outcome of increased business activity in response to an increase in the money supply?

<p>Increased demand for labor</p> Signup and view all the answers

What is the tool used by the Federal Reserve to control interest rates?

<p>Setting key lending rates</p> Signup and view all the answers

What is the term for the amount of cash that the public at large is keeping on hand rather than depositing in banks?

<p>Cash on hand</p> Signup and view all the answers

What is the goal of an expansionary monetary policy?

<p>To increase the money supply</p> Signup and view all the answers

When the Federal Reserve limits the money supply, what happens to interest rates?

<p>They increase</p> Signup and view all the answers

What is the risk of limiting the money supply too much?

<p>Increased unemployment</p> Signup and view all the answers

Which institution is responsible for regulating the money supply in the United States?

<p>The Federal Reserve</p> Signup and view all the answers

What is the purpose of open market operations in monetary policy?

<p>To increase the money supply</p> Signup and view all the answers

What is the primary goal of inflation targeting in monetary policy?

<p>To maintain low and stable inflation</p> Signup and view all the answers

According to the Taylor Rule, when should a central bank raise interest rates?

<p>When inflation or GDP growth rates are higher than desired</p> Signup and view all the answers

What is the inflation rate targeted by the U.S. Federal Reserve?

<p>2% as measured by the Personal Consumption Expenditures (PCE) Price Index</p> Signup and view all the answers

What is one of the advantages of inflation targeting?

<p>It increases central bank transparency and accountability</p> Signup and view all the answers

What is one of the dual mandate objectives of the Federal Reserve?

<p>Low and stable inflation</p> Signup and view all the answers

What is a limitation of inflation targeting, according to critics?

<p>It can constrain economic growth in some economies</p> Signup and view all the answers

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