18 Questions
What is the effect of the Fed buying bonds through open-market operations?
Increase in money supply
Who is the key decision maker for general Federal Reserve policy?
Chair of the Fed
What does it signal when the Fed announces a raise in the federal funds rate?
Intention to sell bonds, reduce money supply
Which action by the Fed would lead to an increase in the money supply?
Decreasing reserve requirements
How many members are on the Board of Governors of the Federal Reserve and how long are they appointed for?
7 members, 14-year terms
What happens to your real income when you receive the same number of dollars every year but prices are rising?
Real income falls
Which of the following correctly describes the impact on bank reserves if a bank has $1,000,000 in deposits, a minimum reserve requirement of 15 percent, and bank reserves of $170,000?
$170,000 decrease in bank reserves
What happens to interest rates and where does aggregate demand shift when the Federal Reserve sells bonds in the open market?
Increase; left
Which function of money is being described when you use it to decide to save for tuition next semester?
Store of value
According to monetarists, what is the nature of the aggregate supply curve at the natural rate of unemployment?
Perfectly vertical
In terms of Federal Reserve requirements, which statement is TRUE?
Federal Reserve requires banks to maintain minimum reserve ratios
If money multiplier is high, what does it imply about the banking system's ability to generate deposit dollars?
Banking system can generate more deposit dollars
What helps explain the multiplier effect?
Spending and re-spending income
What happens to the aggregate demand curve if government purchases decrease?
It shifts left
What is the principal mechanism for directly changing bank reserves?
Open-market operations
What can a bank do if it doesn't have enough reserves?
Borrow reserves from the discount window
What role does the chairman of the Federal Reserve Board of Governors serve?
4 year term with reappointments possible
In what function does money act as a medium of exchange?
Medium of exchange only
Test your knowledge of the Federal Reserve policy with questions on buying bonds, open-market operations, key decision makers, and federal funds rate announcements. See if you can correctly identify the effects of these actions on the money supply and aggregate demand curve.
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