Download Unit 4 Study Guide

Unit 4 Study Guide
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The Federal Reserve is made up of ________12__Districts
One of the main functions of the Federal Reserve is to _Control the Money Supply.______________
Which group in the Federal Reserve organization decides whether to raise or lower interest rates? FOMC
If the Federal Reserve decides to raise the cost to borrow money to keep the economy from growing too fast,
they are trying to prevent _Inflation__. What will banks do? Increase Interest Rates.
Which part of the Federal Reserve regulates banks?
What are the responsibilities of the Board of Governors at the Federal Reserve? Discount Rate and Reserve
Requirement.
What are the responsibilities of the Federal Open Market Committee at the Federal Reserve? Open market
Operations.
What is M0? Coins/currency on you.
The Federal Reserve is concerned with _The overall health of the economy
Easy Money policy leads to a decrease in Interest Rates_________________
Tight money policy leads to an increase in _Interest Rates_____
If a bank’s total deposits are $7,000,000 and the Reserve Requirement is 10%, what would be the amount that
banks are required to deposit in the Federal Reserve?_$700,000
What amount would the bank be able to loan. $6,300,000.
6. What are the tools of monetary policy? Open Market Operations; The Discount Rate; The Reserve Requirement.
7. Explain each and how they are used when a concern in the economy is inflation, and how would they be used
when the concern in the economy is a recession. SEE STUDY SHEET I GAVE YOU.
8. What is the difference between a budget deficit and the national debt. Budget deficit: when the governments
spends more in one year than they have budgeted for in one year. – have to borrow money. This leads to a
budget deficit. The national debt is continuous until paid off.
9. What is the difference between the Federal Funds Rate and the Discount Rate. Federal Funds rate is the interest
rate banks charge each other when borrow money. The discount rate is the rate the Federal Reserve charges
banks when banks borrow money from the Federal Reserve.
10. What is the most commonly used tool of Monetary Policy? Open Market Operations.
11. If banks wanted to increase business activity, they would _Decrease_____interest rates.
12. Unemployment compensation and Social Security checks are all examples of __Transfer___payments.
13. When the Federal Reserve cuts their short term interest rate, it is an attempt by the Fed to _Decrease__the
amount banks keep on reserve.
14. If the reserve requirement is 15%, and the total bank deposits are $9,000,000, how much would this bank be
required to deposit in the Federal Reserve? $1,350,000. How much could they loan? $7,650,000.
15. Welfare payments, unemployment compensation, and Social Security checks are all examples of what? Transfer
Payments
16. The easy money policy is a Fed plan to allow the money supply to Increase and interest rates to
____Decrease__.
17. What are “real wages”? Wages adjusted for inflation
18. An easy money policy leads to an increase in _The Money Supply.
19. A tax is regressive when it __________NOT ON TEST_______________________________.
20. Two of the main ways the Fed regulates the money supply include raising or lowering _Discount Rate or Reserve
Requirement____ and buying and selling government securities__.
Define the following terms:
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Real rate of interest – Interest Rate adjusted for inflation
Easy money Policy – Expansionary policy – Concern = Recession
Reserve Requirement – Percentage of checkable deposits banks are required to keep in reserve.
Discount Rate – Interest rate the Federal Reserve charges banks when banks borrow money from the Federal
Reserve.
Open Market Operations – They buying and selling of government securities.