Day 24

Question 1

______ policy - A set of actions to control a nations overall money supply and achieve economic growth (wants to regulate economic activity over time)

Answer 1

Monetary policy

Question 2

_____ policy - the use of government spending and taxation to influence the economy (wants to regulate economic activity over time)

Answer 2

Fiscal policy

Question 3

What are 3 things the FED does

Answer 3

Conducting national monetary policy, supervising and regulating banks, and maintaining financial stability

Question 4

How does the FED do all these things?

Answer 4

They review applications submitted by bank holding companies

Question 5

Why does the FED do all these things?

Answer 5

They ensure that financial institutions operate in a safe and sound manner and that they comply with laws and regulations

Question 6

Why is inflation NOT good for our economy?

Answer 6

It slows down economic growth

Question 7

How does inflation slow down economic growth?

Answer 7

Things cost more so people spend less

Question 8

_____ - Demand is down and supply of goods is high, production decreases and unemployment increases, which leads to a recession

Answer 8

Inflation

Question 9

What can the FED do when a recession hits?

Answer 9

Lower interest rates, and encourage people to borrow money and make purchases

Question 10

Why does the FED need to be careful when lowering interest rates?

Answer 10

So balance isn’t impacted in the long run

Question 11

Name the two FED divisions

Answer 11

Board of Governors
12 Regional reserve banks

Question 12

Who is responsible for setting the monetary policy and managing the nations money? (Board of governors or 12 regional reserve banks)

Answer 12

Board of governors

Question 13

Who is responsible for carrying out the policy of the board and supervising financial institutions (board of governors or 12 regional reserve banks)

Answer 13

12 regional reserve banks

Question 14

What are the FED’s two primary goals in managing money?

Answer 14

Maintaining stable prices (control inflation) and maximum employment and production output

Question 15

What does raising and lowering the interest rates influence?

Answer 15

It makes the economy stable over time

Question 16

When interest rates go DOWN, people spend ____ because purchasing becomes less expensive. This spending _____ growth in the economy, but if it happens too ____ demand will ____ too fast and supply cannot keep up. Prices then ___ too quickly which leads to ____

Answer 16

Money, motivates, much, increase, rise, shortages

Question 17

Why is the FED considered the bankers bank?

Answer 17

It processes and clears one third of all checks which is approximately 20 billion checks per year

Question 18

Why is the FED considered the governments bank?

Answer 18

It maintains the checking account of the US treasury

Question 19

What bureaus produce coin and paper currency in the US?

Answer 19

Bureau of the Mint
Bureau of Engraving and Printing

Question 20

In what ways do the FED influence the amount of money in circulation

Answer 20

1. Reserve requirement (banks are required to set aside a certain amount of cash in “reserve” usually 3-10% of their deposits)
2. Discount Rate (the money paid by banks to borrow money from a federal reserve bank)
3. Open market operations (Buying and selling of government securities, they SELL securities to the money deploy which in turn REDUCES interest rates, the BUY securities to the money supply which in turn INCREASES interest rates)

Question 21

Why is the FED called a decentralized central bank?

Answer 21

It is structured to eliminate government control but remains accountable to both the government and the public

Question 22

Board is the ____ side

Answer 22

Government

Question 23

Reserve banks are the ____ side

Answer 23

Private