ECON CHAPTER STUDY GUIDE for 6 SECTION 3 and CHAPTER 9 SECTIONS 4-5: THE FEDERAL RESERVE AND MONETARY POLICY

The statement "to break the back of inflation" means to _____________________ _______________

stablize prices

People's confidence to ___________________ their money in banks is an indicator of a healthy banking and economic system

deposit

If the Federal Reserve raises the reserve requirement to 13%, they are pursuing a _______________________________ monetary policy

contractionary

The fractional reserve banking system is significant for economic health because...

a. When people are ___________________________ in banks, they will be more likely to ________________________________ money in banks

b. When more people _______________________ money in banks, there will be more money available to ______________ in the economy

confident

deposit

deposit

loan

The fractional reserve banking system is significant for economic health because...

a. When more __________________ are available in the economy, more people will be likely to ____________________ money to buy a ______________, a ______________, go to ____________________________ or open/expand a ____________________________

b. When more people _____________________ money to make a large ______________________ or open/expand a _______________________, ______________________ spending, aggregate ______________________ and aggregate _______________________ will increase and the economy can experience ________________________ ____________________.

loans

borrow

house

car

college

business

borrow

purchase

business

consumers

demand

supply

econ

growth

1. How does the FDIC build confidence in banks so people will deposit their money in banks?

a. The FDIC guarantees money in each account up to $_______________________ per account

b. The FDIC acts as __________________________ for bank customers to regain their money if a bank ___________________

250,000

insurance

fails

1. How does the Federal Reserve help build confidence in banks so people will deposit their money in banks?

a. The Federal Reserve sends bank __________________ to inspect member banks

b. The Federal Reserve holds banks ___________________ to safe banking policies

c. The Federal Reserve requires banks to hold _____________________ in their vaults to prevent bank __________________

examiners

accountable

reserve

robbery

1. The Federal Reserve encourages people to __________________ their money in banks because this can eventually help ______________________ the money supply and lead to economic ______________________ and growth.

deposit

expand

expansion

1. The Federal Reserve is responsible for supervising member banks when it

a. Checks to verify that __________ made by member banks don't violate set limits

b. Oversees bank ______________________

loans

mergers

1. The Federal Reserve is responsible for supplying paper currency when it

a. Replaces old ____________________ with new bills

b. Cashes a ________________________

c. Makes ____________________ available for its members

money

paycheck

cash

1. The Federal Reserve acts as a fiscal agent for the federal government when it

a. Writes a ______________________ _________________________ check

Writes a _____________ _________________________ check

social security

tax refund

1. When the Federal Reserve sells government securities, the money supply will _______________ and interest rates will _____________________.

decrease

increase

1. The results of low interest rates:

a. More people can ______________________ to ______________________ money to buy a house

b. More workers can be _____________________ by construction companies to ________________ more houses/structures

c. More car salesman will potentially increase their _______________________ as a result of selling more _____________

afford -borrow

hired- build

commission - cars

1. When the Federal Reserve pursues a contractionary monetary policy:

a. Business owners might be reluctant to borrow money to expand because loans are more ______________________________

b. The real estate industry will probably see reduced sales because less people can _________________ to ___________________ money to buy a house

c. Salesmen of large appliances who work on _________________________ will probably see reduced ___________________ because less people can afford to borrow money

expensive

afford- borrow

commission -sales

1. When the Federal Reserve raises the discount rate, the money supply will __________________ and interest rates will ______________________.

decrease

increase

1. When the Federal Reserve buys government securities, the money supply will _______________ and interest rates will _______________________.

increase

decrease

1. The CPI is 6.4%. Real GDP and investment spending are increasing and unemployment is falling. The US is experiencing ______________________________.

inflation

1. The ________________________________________ is the interest rate the Federal Reserve charges banks which borrow money.

discount rate

1. Economic observers pay close attention to the _________________ ______________ and the _________________________ _______________ _______________ because this signals when the Federal Reserve is making a change in monetary policy.

discount rate

federal funds rate

When unemployment is 6.5% and inflation is 12%, the appropriate policy for the Federal Reserve to pursue is _________________________________ policy.

contractionary

1. As a result of contractionary monetary policy to fight inflation, the Federal Reserve wants to achieve

a. _________________________ _________________

b. Increased ______________________ ________________

c. Less money available for banks to ____________________ out

stablize prices

intrest rate

loan

1. When the money supply is contracted

a. Interest rates will _______________________

b. Less money will be available for banks to __________________ out

It will become more _________________________ to borrow money

increase

loan

expensive

1. Expansionary monetary policy will result in

a. ______________________ Interest rates

b. ____________________ money will be available to loan out

c. It will become _______________________ to borrow money

lower

more

cheaper

1. The most important goal to accomplish when fighting inflation is to ____________________ ______________________.

stablize prices

1. Contractionary monetary policy will result in

a. ______________________ Real GDP

b. ______________________ Aggregate Supply

c. ______________________ Unemployment

d. ______________________ Investment Spending

e. A ______________________ in consumer income

f. A ______________________ in consumer spending

g. ________________________ aggregate demand

decrease

decrease

increase

decrease

decrease

decrease

increase

1. To fight a recession, the Federal Reserve can

a. _______________________ government securities

b. _______________________ the reserve requirement

c. _______________________ the discount rate

sell

lower

lower

1. Less businesses will borrow money to open and/or expand their business when the Federal Reserve pursues _______________________________ monetary policy.

contractionary

More people will be likely to borrow money to buy cars and houses when the Federal Reserve pursues _________________________________ monetary policy

expansionary

The Federal Reserve's Federal Open Market Committee and the Board of Governors are willing to take action to prevent a recession or chronic inflation because the Fed is an __________________________ federal regulatory agency

independent

The Federal Open Market Committee and the Board of Governors has a ______________________ inside lag than Congress and the President

shorter

The amount of time it takes for the Board of Governors and the Federal Open Market Committee to decide and implement monetary policy is the _____________________________________

inside lag

1. The Federal Reserve monitors economic indicators, which include

a. _________________ _____________________ _______________________

b. _____________________________

c. The _______________________ _______________ _________________

Gross Domestic Product

unemployment

consumer price index

When the Federal Reserve raises the reserve requirement, there will be ________________ loans available to the public

less

When the Federal Reserve sells government securities, the money supply will _____________________.

contract

1. When the Federal Reserve raises the reserve requirement, the money supply will ___________________________.

expensive

When the Federal Reserve raises the discount rate, loans will become more _________________________

expand

1. When the Federal Reserve buys government securities, the money supply will _____________________.

expand

1. When the Federal Reserve lowers the reserve requirement, the money supply will _____________________

expand

When the Federal Reserve lowers the reserve requirement, _______________ loans will become available to the public

more

1. The synonym for the buying and selling of government securities is ______________ _______________________ ___________________________.

open market operations

The synonym for contractionary money policy is ___________________ _______________ Policy

tight money

1. The most frequently used monetary policy tool of the Federal Reserve is _______________________________________________________________.

buying and selling gov securities (open market)

The monetary policy that is very strong but rarely used by the Federal Reserve is changing the ______________________________________________________.

raise/lower reserve requirment

During a recession, the Federal Reserve will work to achieve ________ aggregate demand and ______ investment spending

increase increase

1. Expansionary monetary policy should help achieve

a. _____________________ Real GDP

b. _____________________ Aggregate Supply

c. _____________________ Investment Spending

d. _____________________ Interest Rates

e. _____________________ Unemployment

f. _____________________ Consumer Spending

g. _____________________ Aggregate Demand

h. _____________________ Consumer income

increase

increase

increase

decrease

decrease

increase

increase

increase

1. The ____________________________________________________ is composed of 12 representatives from the banking industry who advise the Board of Governors on matters within their district.

federal advisory council

1. The Federal Reserve's economic goals include

a. Stabilized _________________________

b. _____________________ employment

c. ______________________ _____________________

prices

full

econ growth

______________________ monetary policy is used to fight a recession.

expansionary

A synonym of expansionary monetary policy is __________ _____________ Policy

easy money

A goal of expansionary monetary policy would include ______ the amount of money circulating in the economy

increase

____________________________________ is deliberate action taken by the Federal Reserve to affect the expansion or contraction of the money supply

monetary policy

The _______________________ _______________ __________________ ______________________________ works with the Board of Governors to implement monetary policy tools and control monetary operations

federal open market committee

The 12 __________________ ________________ _______________ _________ are responsible for overseeing regional member banks, protecting regional economic interests and ensuring that the public has a say in central bank decisions

regional federal reserve banks

The _____________________ of _________________________ is the main governing body of the Federal Reserve System and is responsible for overseeing the Federal Reserve Banks and helping implement US monetary policy

board- governors

The economy is in a recession with unemployment at 11% and stagnant GDP and investment spending. The Federal Reserve will take action to __________________________ the money supply

expand