Monetary Policy: The Federal Reserve
1. In how many cities are Federal Reserve district banks located? - ✔✔12
2. monetary policy involves decreasing the money supply. - ✔✔Contractionary
3. Why does the Fed pay interest to banks? - ✔✔It is interest on money held in
reserve.
4. Which best describes what a central bank uses monetary policy to do? - ✔✔steer
the economy away from recession and toward growth
5. What is the full name of the US central bank, known as the Fed? - ✔✔the Federal
Reserve Bank
6. Which of these is a banking activity of the Fed? - ✔✔storing money for banks
7. Which statement best describes how the Fed's use of open market operations
affects banks? - ✔✔It affects banks' liquidity.
8. 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? -
✔✔Interest rates will decrease.
9. What is a potential negative effect of an expansionary policy? - ✔✔increased
inflation
10. Why is the Fed often referred to as a "lender of last resort," or the last lender to turn
to in a crisis? - ✔✔It offers banks financial protection to keep consumers from
panicking.
11. Which statement best describes how the Fed responds to recessions? - ✔✔It
increases the money supply.
12. Economists studying the money supply categorize the status of the money based on
- ✔✔liquidity.
