Federal Reserve Policy Quiz
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Questions and Answers

What is the effect of the Fed buying bonds through open-market operations?

  • Shifting of the aggregate supply curve
  • Decrease in aggregate demand
  • Increase in money supply (correct)
  • Expansion of bank reserves
  • Who is the key decision maker for general Federal Reserve policy?

  • Treasury Secretary
  • Regional Fed Bank Presidents
  • Chair of the Fed (correct)
  • President of the United States
  • What does it signal when the Fed announces a raise in the federal funds rate?

  • Intention to sell bonds, reduce money supply (correct)
  • Intention to sell bonds, increase money supply
  • Intention to buy bonds, decrease money supply
  • Intention to buy bonds, increase money supply
  • Which action by the Fed would lead to an increase in the money supply?

    <p>Decreasing reserve requirements</p> Signup and view all the answers

    How many members are on the Board of Governors of the Federal Reserve and how long are they appointed for?

    <p>7 members, 14-year terms</p> Signup and view all the answers

    What happens to your real income when you receive the same number of dollars every year but prices are rising?

    <p>Real income falls</p> Signup and view all the answers

    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?

    <p>$170,000 decrease in bank reserves</p> Signup and view all the answers

    What happens to interest rates and where does aggregate demand shift when the Federal Reserve sells bonds in the open market?

    <p>Increase; left</p> Signup and view all the answers

    Which function of money is being described when you use it to decide to save for tuition next semester?

    <p>Store of value</p> Signup and view all the answers

    According to monetarists, what is the nature of the aggregate supply curve at the natural rate of unemployment?

    <p>Perfectly vertical</p> Signup and view all the answers

    In terms of Federal Reserve requirements, which statement is TRUE?

    <p>Federal Reserve requires banks to maintain minimum reserve ratios</p> Signup and view all the answers

    If money multiplier is high, what does it imply about the banking system's ability to generate deposit dollars?

    <p>Banking system can generate more deposit dollars</p> Signup and view all the answers

    What helps explain the multiplier effect?

    <p>Spending and re-spending income</p> Signup and view all the answers

    What happens to the aggregate demand curve if government purchases decrease?

    <p>It shifts left</p> Signup and view all the answers

    What is the principal mechanism for directly changing bank reserves?

    <p>Open-market operations</p> Signup and view all the answers

    What can a bank do if it doesn't have enough reserves?

    <p>Borrow reserves from the discount window</p> Signup and view all the answers

    What role does the chairman of the Federal Reserve Board of Governors serve?

    <p>4 year term with reappointments possible</p> Signup and view all the answers

    In what function does money act as a medium of exchange?

    <p>Medium of exchange only</p> Signup and view all the answers

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