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# Questions and Answers **Question 9:** The Federal Reserve sometimes acts as a lender of last resort. Which of the following describes this role? a. Individuals can borrow from the Fed when the President declares a national disaster. b. Individuals can borrow money from the Fed if they are unabl...

# Questions and Answers **Question 9:** The Federal Reserve sometimes acts as a lender of last resort. Which of the following describes this role? a. Individuals can borrow from the Fed when the President declares a national disaster. b. Individuals can borrow money from the Fed if they are unable to borrow from a bank. c. Banks can always go to the Fed for reserves to purchase more government bonds. d. Banks can always go to the Fed for reserves to meet their obligations to depositors. e. Business firms can borrow money from the Fed if they are unable to borrow from a bank. **Correct Answer:** b. **Question 10:** If the Federal Reserve wants to change the money supply by $200 billion and the reserve requirement ratio is 0.2, what change in reserves is needed? a. $20 billion b. $40 billion c. $50 billion d. $100 billion e. $200 billion **Correct Answer:** b. **Question 11:** Which of the following is a power of the Federal Depository Insurance Corporation (FDIC)? a. Buying and selling US federal government bonds in the open market. b. Issuing Federal Reserve notes (i.e. paper currency). c. Setting the discount rate. d. Insuring deposits up to $250,000. e. All of the above are powers of FDIC. **Correct Answer:** d. **Question 12:** An open market purchase of bonds by the Federal Reserve: a. Drains reserves from the banking system and shifts the money supply curve to the left. b. Injects reserves into the banking system and shifts the money demand curve to the left. c. Injects reserves into the banking system and shifts the money supply curve to the right. d. Drains reserves from the banking system and shifts the money supply curve to the right. e. Injects reserves into the banking system and shifts the money supply curve to the left. **Correct Answer:** c. **Question 13:** When the Federal Reserve increases the discount rate, what is the expected impact on short-term market interest rates and spending? a. Interest rates fall, spending on automobiles and business investments rise. b. Interest rates rise, spending on automobiles and business investments fall. c. Interest rates rise, spending on automobiles and business investments rise. d. Interest rates fall, spending on automobiles and business investments fall. e. Interest rates fall, spending on automobiles falls, and business investment rises. **Correct Answer:** b. **Question 14:** Using fiscal policy, what's the best way to get the economy out of a recession? a. Lower interest rates. b. Decrease government purchases of goods and services. c. Decrease the federal funds rate. d. Decrease income tax rates. e. Decrease transfer payments. **Correct Answer:** d. (or potentially b, depending on the specific context)