Interest Rates and Bonds Quiz

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What is the primary purpose of the Fed's open-market operations?

To provide loans to commercial banks

To maintain a stable interest rate (correct)

To increase the money supply by buying government bonds

To decrease the money supply by selling government bonds

What is the difference between a repurchase agreement (repo) and a reverse repo?

In a repo, the Fed lends money to banks, while in a reverse repo, banks lend money to the Fed (correct)

In a repo, the Fed increases the money supply, while in a reverse repo, the Fed decreases the money supply

In a repo, the Fed sells securities to banks, while in a reverse repo, the Fed buys securities from banks

There is no difference between a repo and a reverse repo

What is the primary purpose of the reserve ratio?

To set the interest rate charged by the Fed

To regulate the lending practices of commercial banks

To determine the amount of bonds the Fed can buy or sell

To control the money supply by requiring banks to hold a certain amount of reserves (correct)

How does the Fed use the reserve ratio to manage the money supply?

By increasing the reserve ratio, the Fed decreases the money supply Signup and view all the answers

Which of the following is a tool the Fed can use to influence interest rates?

All of the above Signup and view all the answers

What is the primary purpose of the Fed's discount rate?

To set the interest rate that the Fed charges banks for borrowing money Signup and view all the answers

What is the relationship between the reserve ratio and the money multiplier?

A higher reserve ratio leads to a lower money multiplier Signup and view all the answers

Which of the following is a characteristic of government bonds?

They have a fixed maturity date Signup and view all the answers

How do changes in the Fed's target interest rate affect the yield on government bonds?

Increases in the target rate lead to higher bond yields Signup and view all the answers

What is the primary purpose of the Fed's open-market operations?

To maintain a stable interest rate Signup and view all the answers

Interest Rates and Bonds Quiz

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Questions and Answers

What is the primary purpose of the Fed's open-market operations?

What is the difference between a repurchase agreement (repo) and a reverse repo?

What is the primary purpose of the reserve ratio?

How does the Fed use the reserve ratio to manage the money supply?

Which of the following is a tool the Fed can use to influence interest rates?

What is the primary purpose of the Fed's discount rate?

What is the relationship between the reserve ratio and the money multiplier?

Which of the following is a characteristic of government bonds?

How do changes in the Fed's target interest rate affect the yield on government bonds?

What is the primary purpose of the Fed's open-market operations?

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