Econlowdown Monetary Policy

All but one president of the regional Reserve Banks rotates a voting position on the Federal Open Market Committee (FOMC). Which president has permanent voting privileges?

Federal Reserve Bank of New York

While it does not directly set this rate, the Federal Open Market Committee (FOMC) sets a target for which of the following rates?

Federal funds rate

In the long run, increasing the money supply will most likely lead to which scenario?

Higher inflation

Which of the following best describes the relationship between bank reserves, the federal funds rate, and a decrease in interest rates for consumers and business?

If the FOMC uses monetary policy to increase the amount of reserves in the banking system, the federal funds rate will decrease, which will result in generally lower interest rates.

The Federal Reserve is audited on an annual basis.

True

In an economy experiencing a recession, with many unemployed resources, an increase in the money supply (M) would most likely lead to which scenario in the short run?

An increase in the quantity of goods and services produced (Q) and then an increase in the price level (P)

How many districts are there in the Federal Reserve System?

12

How many voting members are on the FOMC?

12

How long is the term of a Federal Reserve governor?

14 years

When was the Federal Reserve established?

1913

What is the Federal Reserve's chief body for monetary policy?

FOMC

Which of the following is not one of the three responsibilities of the Federal Reserve System?

Lending money to consumers

What is the Federal Reserve's most frequently used tool for conducting monetary policy?

Open market operations

Which monetary policy tool is the Federal Reserve using when it buys and sells government securities?

Open market operations

Central bank independence is most strongly linked with which economic outcome?

Price stability

Which of the following is one of the Federal Reserve System's two policy goals (also called its dual mandate)?

Price stability

Which of the following is not a monetary policy tool used by the Federal Reserve?

Prime rate

Which of the Federal Reserve's monetary policy tools is associated with its role as lender of last resort but is used primarily as a signal of the Fed's policy intentions?

The discount rate

Which interest rate serves as the target for open market operations?

The federal funds rate

If the money supply (M) increases while velocity (V) and quantity (Q) remain constant, what will likely happen as a result?

The price level (P) will increase, which means there is inflation.

Which would most closely reflect the strategy of price stability of the Federal Reserve?

An inflation rate that remains steady at 2 percent

How are members of the Board of Governors chosen?

Appointed by the president of the United States, confirmed by the U.S. Senate

If the inflation rate were falling and the unemployment rate were high and rising, the FOMC would likely respond by doing which of the following?

Decreasing the federal funds target rate and buying government securities

The interest rate Reserve Banks charge commercial banks for short-term loans is the

Discount rate

Imagine this scenario: the inflation rate has fallen from 4 percent to 1 percent. How would you label this change in price level?

Disinflation

During a period when unemployment is high and economic growth is stagnant, Federal Reserve policymakers might decide to pursue which type of monetary policy?

Expansionary monetary policy

Which part of the Federal Reserve System serves the daily needs of banks across the country?

Reserve Banks

What actions would the FOMC likely take if it were to pursue contractionary monetary policy using open market operations?

Sell government securities