Term
True or False?
On a typical day, about as much money is deposited into a given bank as is withdrawn from that bank. |
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Definition
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Term
True or False?
Today, the FDIC insures each depositor to at least $250,000 per insured bank. |
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Definition
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Term
True or False?
The Fed is funded by Congress. |
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Definition
FALSE.
The Fed is financially independent from the federal government; it is a corporation that
earns more than enough to finance its operations without being funded by Congress. |
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Term
True or False?
The Federal Reserve Bank of Minneapolis provides services to banks in Iowa. |
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Definition
FALSE.
The Federal Reserve Bank of Chicago provides services to banks in Iowa. |
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Term
True or False?
The four monetary policy goals of the Fed are low prices, high employment, a stable financial system, and
economic growth. |
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Definition
FALSE.
The four monetary policy goals of the Fed are STABLE prices, high employment, a stable
financial system, and economic growth. |
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Term
True or False?
The Fed could increase the money supply by performing open market sales, decreasing the discount rate,
or decreasing reserve requirements. |
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Definition
FALSE.
The Fed could increase the money supply by performing open market PURCHASES,
decreasing the discount rate, or decreasing reserve requirements. |
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Term
True or False?
Before the Financial Crisis of 2007-2009, the Fed conducted monetary policy principally through open
market operations. |
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Definition
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Term
True or False?
Treasury bills have shorter maturities than Treasury notes, and Treasury notes have shorter maturities
than Treasury bonds. |
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Definition
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Term
True or False?
The FOMC meets about every 8 weeks to discuss the condition of the economy and to consider changes
in monetary policy. |
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Definition
FALSE.
The FOMC meets about every 6 weeks to discuss the condition of the economy and to
consider changes in monetary policy. |
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Term
True or False?
The federal funds rate is the interest rate the Fed charges banks for loans, and the discount rate is the
interest rate banks charge each other for loans. |
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Definition
FALSE.
The discount rate is the interest rate the Fed charges banks for loans, and the federal funds
rate is the interest rate banks charge each other for loans. |
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Term
True or False?
Open market sales cause the supply of federal funds to decrease and the demand for federal funds to
increase. |
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Definition
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Term
True or False?
In order to increase the money supply, the FOMC sets a higher target for the federal funds rate. |
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Definition
FALSE.
In order to increase the money supply, the FOMC sets a LOWER target for the federal
funds rate. |
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Term
True or False?
When the federal funds rate rises or falls, other interest rates often move in the opposite direction. |
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Definition
FALSE.
When the federal funds rate rises or falls, other interest rates often move in the SAME
direction. |
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Term
True or False?
The discount rate is always larger than the federal funds rate. |
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Definition
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Term
True or False?
By raising the discount rate, the Fed encourages banks to make more loans to households and firms. |
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Definition
FALSE.
By LOWERING the discount rate, the Fed encourages banks to make more loans to
households and firms. |
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Term
True or False?
The Fed rarely changes reserve requirements. |
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Definition
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Term
True or False?
To fight a recession, the Fed conducts open market purchases. |
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Definition
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Term
True or False?
Following a decrease in aggregate demand caused by pessimism, we would expect the Fed to increase
interest rates. |
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Definition
FALSE.
Following a decrease in aggregate demand caused by pessimism, we would expect the Fed
to DECREASE interest rates. |
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Term
True or False?
Expansionary monetary policy leads to increases in C, I, and NX. |
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Definition
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Term
True or False?
Contractionary monetary policy encourages households to save instead of spend. |
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Definition
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Term
True or False?
If the Fed wants to encourage borrowing by households and firms, then it should conduct expansionary
monetary policy. |
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Definition
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Term
True or False?
Expansionary monetary policy makes stocks more appealing than bonds to savers, while contractionary
monetary policy makes bonds more appealing than stocks to savers. |
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Definition
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Term
True or False?
If U.S. interest rates increase relative to foreign interest rates, then the value of the dollar will rise. |
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Definition
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Term
True or False?
When U.S. interest rates decrease relative to foreign interest rates, U.S. imports increase and U.S. exports
decrease. |
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Definition
FALSE.
When U.S. interest rates decrease relative to foreign interest rates, the demand for U.S.
financial assets and the demand for the dollar decrease, which causes the value of the dollar to
decrease, which makes U.S. imports more expensive and U.S. exports less expensive, which causes U.S.
imports to decrease and U.S. exports to increase. |
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Term
True or False?
The Fed can eliminate the business cycle using monetary policy. |
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Definition
FALSE.
The Fed can keep recessions shorter and milder than they would otherwise be, but the Fed
cannot eliminate the business cycle. |
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Term
True or False?
To increase the money supply, the FOMC orders the Treasury to print U.S. dollars and put them into
circulation. |
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Definition
FALSE.
To increase the money supply, the FOMC orders the trading desk at the Federal Reserve
Bank of New York to buy Treasury securities from the public. |
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Term
True or False?
Expansionary monetary policy decreases real GDP, while contractionary monetary policy increases real
GDP. |
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Definition
FALSE.
Expansionary monetary policy increases real GDP, while contractionary monetary policy
decreases real GDP. |
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Term
True or False?
To fight inflation, the Fed tries to decrease aggregate demand by increasing interest rates. |
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Definition
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