Monetary Policy: The Federal Reserve – Flashcards
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Why is the Fed often referred to as a "lender of last resort," or the last lender to turn to in a crisis?
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It offers banks financial protection to keep consumers from panicking.
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What is the full name of the US central bank, known as the Fed?
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the Federal Reserve Bank
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Which statement best describes how the Fed responds to recessions?
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It increases the money supply.
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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?
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Interest rates will decrease.
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What is a potential negative effect of an expansionary policy?
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increased inflation
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Economists studying the money supply categorize the status of the money based on
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liquidity
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Why does the Fed pay interest to banks?
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It is interest on money held in reserve.
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Which statement best describes how the Fed's use of open market operations affects banks?
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It affects banks' liquidity.
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Which of these is a banking activity of the Fed?
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storing money for banks
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Which best describes a central bank's primary role?
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creating monetary policy
