30 Questions
Which action does the Fed take to enact a tight-money policy?
Selling bonds on the open market
What is the effect of selling bonds on the open market?
Bond prices fall and interest rates increase
What happens when interest rates increase?
Lending is discouraged
What is the impact of less lending on aggregate demand?
Aggregate demand decreases
What is the effect of decreased aggregate demand on GDP growth?
GDP growth decreases
What is the impact of a contractionary monetary policy on unemployment?
Unemployment may increase
Which of the following is a tool the Fed uses to expand the money supply?
Selling government bonds
What is the purpose of expansionary monetary policy?
To promote economic stability
How does the discount rate affect the money supply?
Increasing the discount rate decreases the money supply
What is the purpose of contractionary monetary policy?
To reduce the money supply
What is the federal funds rate?
The interest rate banks charge each other to borrow money
How does the Fed communicate its intention to buy or sell bonds?
By announcing a target for the federal funds rate
Which term best describes the Federal Reserve System?
Central bank
What is the main purpose of central banks?
To influence the amount of loanable funds banks have available
What is one of the duties of central banks in relation to stability?
To regulate and supervise banks
How does the lending practice of the Federal Reserve differ from other banks?
It does not seek to make a profit through lending
What is one of the duties of the Federal Reserve in relation to banking in the United States?
To provide regulation and oversight to ensure sound banking practices
What is the meaning of the term 'monetary'?
Relating to money
Which of the following is a function of the Federal Reserve System?
Regulating the supply of money
Who appoints the members of the Board of Governors of the Federal Reserve?
The president
Which of the following is true about the stock ownership of member banks in the Federal Reserve district bank?
It earns a set dividend rate
What is the role of the Federal Open Market Committee (FOMC)?
Supervising the sale and purchase of federal government securities
What is the purpose of the Consumer Advisory Council?
Advising the board on matters concerning the Fed's responsibilities in enforcing consumer protection laws related to borrowing
What service does the Fed offer to banks in terms of check clearing?
Recording receipts and expenditures of bank clients
Which of the following is NOT a way in which the Fed serves the banking system?
Creating money through deposits and loans
What is the purpose of the Fed regulating and supervising banks?
To maintain competition and enforce truth-in-lending laws
What is the role of the Fed as the Federal Government's banker in paying government bills?
Collecting tax revenues and issuing checks for government programs
What does the Fed do in the process of selling government securities?
Provides information about the securities and delivers the bonds to their owners
What is the purpose of the Fed in distributing currency?
To ensure bills are distributed to banks in needed amounts
What does it mean for banks to create money in the fractional reserve banking system?
Keep a fraction of their deposits in reserve and loan out the rest
Test your knowledge on how the Federal Reserve serves the banking system by providing loans during times of short-term cash flow issues. Explore the role of the Fed in lending money to banks and its impact on interest rates.
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