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Questions and Answers
What is the primary purpose of the Fed's open-market operations?
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?
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?
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?
How does the Fed use the reserve ratio to manage the money supply?
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Which of the following is a tool the Fed can use to influence interest rates?
Which of the following is a tool the Fed can use to influence interest rates?
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What is the primary purpose of the Fed's discount rate?
What is the primary purpose of the Fed's discount rate?
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What is the relationship between the reserve ratio and the money multiplier?
What is the relationship between the reserve ratio and the money multiplier?
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Which of the following is a characteristic of government bonds?
Which of the following is a characteristic of government bonds?
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How do changes in the Fed's target interest rate affect the yield on government bonds?
How do changes in the Fed's target interest rate affect the yield on government bonds?
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What is the primary purpose of the Fed's open-market operations?
What is the primary purpose of the Fed's open-market operations?
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