Questions and Answers
What does the Fed influence by adjusting its interest rate?
consumer borrowing
What is the most likely immediate result of banks having more money to lend?
Interest rates will decrease
Why does the Fed pay interest to banks?
It is interest on money held in reserve
How does the Fed typically respond to recessions?
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In how many cities are Federal Reserve district banks located?
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What are a central bank's primary goals?
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What is a potential negative effect of an expansionary policy?
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What does a central bank use monetary policy to do?
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The ___ rate is the interest rate banks charge each other for borrowing or storing money.
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What is one banking activity of the Fed?
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Why is the Fed often referred to as a 'lender of last resort'?
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How do regulations on prices affect business practices?
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Which regulatory agencies provide general oversight for the banking industry?
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What is the most efficient way to ensure that producers are responsible for their products?
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What is one function of regulatory agencies?
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Which economist likely would have supported the US government's intervention during the economic crisis in 2008?
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What principle did Friedrich Hayek believe in?
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Study Notes
Federal Reserve Overview
- Adjusting interest rates by the Fed directly influences consumer borrowing behavior.
- The Fed consists of 12 district banks located across different cities in the United States.
Monetary Policy and Economic Impact
- An increase in the money supply during recessions is a key action taken by the Fed to stimulate the economy.
- Expansionary policies may lead to negative outcomes, particularly increased inflation.
Interest Rates and Banking
- The federal funds rate is the interest rate banks charge one another for short-term loans.
- When banks have more money to lend due to changes in the money supply, interest rates are likely to decrease.
Role of the Fed
- The Fed pays interest to banks on reserves held to manage liquidity and stabilize the banking system.
- As a "lender of last resort," the Fed provides financial support to banks to prevent consumer panic.
Regulatory Framework
- The primary goals of central banks include limiting inflation and reducing unemployment rates.
- Regulatory agencies like the Fed and FDIC oversee the banking industry to ensure financial stability.
Price Regulation and Business Practices
- Regulations on pricing help maintain fairness and prevent monopolies in the marketplace.
- Encouraging business compliance with regulations is a fundamental role of supervisory agencies.
Additional Insights
- Labeling is cited as an effective method to ensure producer accountability regarding product safety and information.
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Description
Test your knowledge on the Federal Reserve's monetary policy with these flashcards. Explore key terms and concepts related to interest rates, consumer borrowing, and the effects of money supply changes. Perfect for students and anyone interested in economics.
