Title: Federal Reserve System
Course: Demo 1

Q: What government entity is responsible for monitoring the U.S. money supply?
- Federal Trade Commission
- Federal Labor Relations Authority
- Federal Reserve
A: Federal Reserve

Q: The Federal Reserve System seeks to stabilize prices by:
- regulation of interest rates
- regulating the money supply
- controlling the price of goods
A: regulation of interest rates; regulating the money supply

Q: The Federal Reserve relies on what other tool(s) to conduct monetary policy besides the discount rate?
- reserve requirements
- open market operations
- banking fees
A: reserve requirements; open market operations

Q: The Federal Reserve uses a variety of monetary policy tools to achieve which of the following goal(s)?
- full employment
- price stability
- sustainable economic growth
A: full employment; price stability; sustainable economic growth

Q: The Federal Reserve raises the reserve requirement from 7 percent to 8 percent. Consequently banks must set aside more money and consequently have less money to lend. The result is that the banks will raise the interest rate they charge to their customers. These conditions make it harder and more expensive for people and businesses to borrow money. Because they can’t borrow as much, they can’t spend as much. If people aren’t spending as much, prices don’t go up. With this action, the Fed has lessened the likelihood of ________.
- recession
- free market
- inflation
A: inflation

Q: The Federal Reserve lowers the reserve requirement from 7 percent to 6 percent. Consequently banks must set aside less money to meet the reserve requirement. They have more money to lend to their customers and are able to lower the rate of interest they charge. These conditions make it less expensive for people and businesses to borrow money. Because they can borrow more, they can spend more. If people are spending more, prices go up. With this action, the Fed has lessened the likelihood of ________.
- inflation
- free market
- recession
A: recession

Q: Hometown Bank has made a significant number of loans to their customers, some of which have been very large. An audit of the bank’s records shows that as a result of this increased lending activity that the bank is now below the Federal Reserve’s minimum reserve requirement. The Fed lends the bank the amount necessary to bring its reserves up to the required level. Even though Hometown Bank is borrowing the money from the Fed, it will still have to pay interest on this money. The interest rate that is paid to the Fed on this loan is the ________.
- corporate rate
- carryover rate
- discount rate
A: discount rate

Q: Hometown Bank has made a significant number of loans to their customers, some of which have been very large. An audit of the bank’s records shows that as a result of this increased lending activity that the bank is now below the Federal Reserve’s minimum reserve requirement. A member bank, City Bank, has excess reserves, which Hometown Bank borrows. The rate of interest that Hometown Bank will pay to City Bank for the loan is the ________ rate.
- intrabank
- institutional
- federal funds
A: federal funds