Monetary Policy: The Federal Reserve Flashcards

What is a potential negative effect of an expansionary policy? (Select all that apply)

Which best describes a central bank's primary goals?

Economists studying the money supply categorize the status of the money based on:

When inflation is _____, the Fed aims to slow the economy.

Which best describes a central bank's primary role?

Why does the Fed pay interest to banks?

Which statement best describes how the Fed responds to recessions?

If the domino effect occurs as a result of changes in the money supply, what will most likely happen as an immediate result of banks having more money to lend?

Why is the Fed often referred to as a 'lender of last resort'?

The ______ rate is the interest rate banks charge each other for borrowing or storing money.

Expansionary Monetary Policy

A potential negative effect of expansionary monetary policy is increased inflation.

Central Bank Goals

The primary goals of a central bank include limiting inflation and reducing unemployment.

Money Supply Classification

Economists categorize the money supply based on liquidity, which refers to how easily money can be converted into cash.

Fed's Response to Inflation

When inflation is high, the Federal Reserve aims to slow down the economy.

Central Bank Role

A central bank's primary role is to create and implement monetary policy.

Interest Payments to Banks

The Federal Reserve pays interest to banks as compensation for the money held in reserve.

Fed's Action During Recessions

In response to recessions, the Federal Reserve typically increases the money supply to stimulate the economy.

Effects of Increased Lending

An increase in the amount of money banks have available to lend usually leads to a decrease in interest rates.

Lender of Last Resort

The Federal Reserve is termed a "lender of last resort" because it offers financial protection to banks, preventing panics that could disrupt the economy.