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Chapter 16: The Federal Reserve and Monetary Policy Economics Practice Test Q&As

What is one service the Fed performs for the Treasury Department?
a. It auctions government bills.
b. It collects federal taxes..
c. It selects the Secretary of the Treasury.
d. It processes payments, such as Social Security checks.

ANS: d. It processes payments, such as Social Security checks.

A company that owns more than one bank is a _____.
a. savings and loan
b. Federal Reserve Bank
c. corporation
d. bank holding company

ANS: bank holding company

Truth-in-lending laws require that _____.
ANS: d. sellers provide full and accurate information about loan terms

What is the function of a bank examiner?
ANS: d. to make sure banks are obeying laws and regulations

Which of the following actions would the Fed take to fight inflation?
ANS: d. reduce the money supply

What is one possible short-term effect of an easy money policy?
ANS: d. increased investment spending

Which of the following is an example of inside lag in monetary policy?
ANS: d. Members of the Board of Governors refuse to lower the discount rate until several months after a recession has begun.

Which of these situations is most likely to cause the Fed to introduce a tight money supply?
a. A recession has reduced aggregate demand and increased unemployment.
b. The federal government passes a new budget with a large deficit.
c. The economy is prosperous with relatively low inflation and low unemployment.
d. The economy is expanding quickly and inflation is a concern.

ANS: d. The economy is expanding quickly and inflation is a concern.

The Federal Reserve System is responsible for all of the following except _____.
a. providing banking and fiscal services to the federal government
b. regulating the banking industry and providing banking services
c. managing the national money supply to meet current demand
d. implementing fiscal policy concerning taxation and government spending

ANS: d. implementing fiscal policy concerning taxation and government spending

In the United States, what does the general level of a family’s income have to do with the amount of cash the family is likely to hold?
a. The higher the real income, the less cash the family will hold.
b. The lower the real income, the more cash the family will hold.
c. The two factors are not related to each other.
d. The higher the real income, the more cash the family will hold.

ANS: d. The higher the real income, the more cash the family will hold.

What is the federal funds rate?
a. an individual’s or company’s total assets minus liabilities
b. rate the Federal Reserve charges for loans to commercial banks
c. process by which banks record whose account gives up money and whose account receives money when a customer writes a check
d. interest rate banks charge each other for loans

ANS: d. interest rate banks charge each other for loans

What is a delay in implementing monetary policy called?
a. outside lag
b. tight monetary policy
c. easy monetary policy
d. inside lag

ANS: d. inside lag

How long does it take for a check to clear?
a. one day
b. three days
c. four days
d. two days

ANS: d. two days

The rate the Federal Reserve charges for loans to commercial banks is called _____.
ANS: d. the discount rate

What monetary policy should be implemented to correct an inflationary economy?
a. money creation policy
b. laissez faire policy
c. easy monetary policy
d. tight monetary policy

ANS: d. tight monetary policy

What is the main idea of monetarism?
a. All money should be issued by the federal government.
b. Interest rates are the most important factor in economic performance.
c. Money should be minted in gold or silver.
d. The money supply is the most important factor in economic performance.

ANS: d. The money supply is the most important factor in economic performance.

what does fiscal policy include?
what does monetary policy do?
the time it takes for monetary policy to have an effect
monetary policy-makers can help smooth out the fluctuations of the business cycle by _____.
why does monetary policy usually involve a streamlined inside lag?
what is one possible short-term effect of an easy money policy?
which of the following actions would the fed take to fight inflation?

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