Questions and Answers
What happens when the central bank decides to sell bonds using open market operations?
The money supply decreases.
What is the effect when the central bank lowers the reserve requirement on deposits?
The money supply increases and interest rates decrease.
Which of the following events would cause interest rates to increase?
When the Federal Reserve announces that it is implementing a new interest rate policy, the ____________________ will be affected.
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Study Notes
Central Bank Operations
- Selling bonds through open market operations leads to a decrease in the money supply.
Reserve Requirements
- Lowering the reserve requirement on deposits results in an increased money supply and decreased interest rates.
Interest Rates
- An increase in the discount rate directly causes an increase in interest rates.
Federal Reserve Policies
- Announcements regarding new interest rate policies by the Federal Reserve affect the federal funds rate.
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Description
Explore key concepts in Monetary Policy with these flashcards from Module 9. Review definitions and effects of central bank actions on money supply and interest rates. Enhance your understanding of how monetary policy tools impact the economy.
