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unit 5 econ
| Question | Answer |
|---|---|
| easy money | money policy is usually adopted in a time of economic recession. |
| What are the 3 goals of the Fed and monetary policy? | stable prices, full employment, sustainable economic growth |
| How does a monetary policy of low interest rates affect consumers? | It lowers savings rates |
| What are the 3 main characteristics of the Fed that make it unique to all other central banking systems in the world? | major independence from political authorities, relies on district banks to carry out banking policies developed on national level, member banks own stock in the Fed reserve banks their districts |
| If the Federal reserve adopts an expansionary monetary policy, | interest rates fall and credit is abundant |
| The Federal Reserve System controls the size of the... | money supply |
| A short-term monetary policy action would MOST LIKELY. | lower interest rates |
| By rgulating the money supply and the interest rates charged for credit, the Fed influences | aggregate demand |
| What would MOST LIKELY happen if the Federal Reserve System lowered interest rates? | Unemployment would be reduced in the short run |
| The Fed usually adopts a ___money policy when they begin to fear there is too much money in circulation and it could lead to inflation. | tight |
| How might monetary policy be used to combat inflation fears? | The Federal Reserve might raise interest rates |
| Which of these would deter inflation? | a decrease in the price of securities |
| Which has LEAST LIKELY been the historical goal of the Federal Reserve's monetary policy? | Decreasing the national debt |
| What are the biggest challenges that the Fed faces when forming and implementing a monetary policy? | Collecting all of the data needed for analysis and action can take months, Time-consuming discussions about the data must take place, time passes before the impact of the monetary policy is felt through the economy |
| What are the 2 big reasons the Fed puts new money into circulation? | Replace old and worn-out notes and To increase amount of money in circulation by expanding the pool of cash that the Federal Reserve banks can loan |
| During a recession, what must happen to interest rates to spur economic growth? | drop |
| What would be reasonable monetary policy during a period of high inflation? | reduce the money supply |
| which of there is MOST LIKELY to occur after the government increases taxes? | consumer spending increase |
| If the federal government wants to encourage businesses and consumers to spend more money, it would MOST LIKELY... | decrease tax rate |
| which of these actions of the Federal Reserve can slow economic growth? | the Federal Reserve increases the discount rate, which causes interest rates to rise and people to save rather than to spend |
| which pairs of operations BEST fit with fiscal policy? | government spending and taxation |
| what is the effect of an expansionary fiscal policy upon an economy with an increasing budget deficit and growing national debt? | increased deficit spending and increasing or growing national debt |
| setting the discount and interest rates, establishing reserve requirements for banks, buying and selling U.S. government securities all are ways in which the Federal Reserve system can | regulate the money supply |
| State governments often decide to place a "sin tax" on specific products or goods, like, alcohol and tobacco. Which rationale is LEAST LIKELY to encourage governments to adopt a "sin tax"? | "Sin taxes" disproportionately affects lower income groups |
| What consumer behavior is the Federal reserve board trying to encourage when it implements a loose monetary policy? | decreased saving and increased spending |
| which action by the Federal Reserve would help to slow down rising inflation? | sell bonds |
| Many local governments rely on sales taxes for much of their revenue. When they have budget shortages, why do they not simply raise rates as needed? | higher rates could drive businesses to other countries |
| how will a contractionary fiscal policy affect a budget deficit? | shrink the deficit |
| the economy is experiencing rapid inflation , pushing above 9%, which fiscal policy action should the government implement in an attempt to fix this problem? | raise taxes |
| what is the name of the "central bank" in the United States? | the Federal Reserve |
| the Federal Reserve has kept interest rates very low. Some might argue this could lead to | inflation |
| the Federal Reserve institutes a tight monetary policy in order to reign in inflation. What is likely consequence of such actions | the unemployment rate will rise |
| the process by which the Federal Reserve controls the supply, availability, and cost of money in order to keep the economy stable is | monetary policy |
| when the Federal Reserve sells government securities on the open market, what effect does this action have on the nation's money supply and interest rates? | money supply decreases and interest rates increase |
| fearing a recession the government decides to give citizens a tax rebate check to buy Christmas gifts. What is possible outcome of this action? | higher rates of inflation |
| the federal government uses government spending and tax rates to help control recessions and encourage economic activity. This is called | fiscal policy |
| you want a new truck. How can the Federal Reserve raising of the discount rate affect your decision to purchase the truck? | it will raise interest rates and make your truck payment higher |
Created by:
Terminal98