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NAME: __________________________
CHAPTER 16 GUIDE
1. Congress created the ______________________________ (______) in 1908 to propose solutions
to the nation’s banking problems.
2. Based on the NMC’s recommendations, Congress passed the ______________________ in 1913.
3. Like so many American institutions, the structure of the Federal Reserve System represents
compromises between _____________ power and _______________ powers.
4. The Federal Reserve System is overseen by the _______________________ headquartered in
Washington, D.C.
5. ________________________ refers to the actions the Fed takes to influence the level of real GDP
and the rate of inflation in the economy.
6. The Federal Reserve Act divided the United States into ________ districts.
7. The ______________________________ (______) makes key decisions about interest rates and
the growth of the United States money supply.
8. List and briefly describe the way the Federal Reserve provides services to the federal government:
a. _________________________________________________________________________
b. _________________________________________________________________________
c. _________________________________________________________________________
9. List and briefly describe the way the Federal Reserve provides services to banks:
a. _________________________________________________________________________
b. _________________________________________________________________________
c. _________________________________________________________________________
10. List and briefly describe the way the Federal Reserve regulates the banking industry:
a. _________________________________________________________________________
b. _________________________________________________________________________
11. List and briefly describe the way the Federal Reserve manages the national money supply:
a. _________________________________________________________________________
b. _________________________________________________________________________
12. The ____________________ is the interest rate that banks charge each other for loans.
13. The ____________________ is the interest rate the Federal Reserve charges commercial banks.
14. Who was Fed chairman during the longest period of economic growth in the nation’s history?
__________________________
(OVER)
15. The process by which money enters into circulation is called ____________________.
16. The amount that a bank is allowed to lend is determined by the ______________________ (_____)
which is the fraction of a deposit that must be kept on hand required by the Federal Reserve.
17. The amount of new money that will be created by lending is given by the ____________________,
which is calculated as ____________.
18. How much money creation will an initial deposit of $1,000 yield with an RRR of 0.1%? $_______
19. The actual money multiplier effect in the United States is estimated to be ____________________.
20. Reducing reserve requirements _____________ the money supply; increasing it does the opposite.
21. The Fed rarely changes reserve requirements because it is ______________ to the banking system.
22. The _______________ is the interest rate banks charge on short-term loans to their best costumers.
23. Besides reserve requirements, list and briefly explain two other ways the Fed alters money supply:
a. _________________________________________________________________________
b. _________________________________________________________________________
24. Increasing the discount rate _____________ the money supply; decreasing it does the opposite.
25. The Fed can reduce the money supply by ___________ bonds; ___________bonds will increase it.
26. The Federal Reserve uses monetary policy to try to _____________ business cycles.
27. The belief that the money supply is the most important factor in macroeconomic performance is
known as ______________________.
28. In a declining economy, during a contraction, the Fed may want to __________ the money supply.
This practice is known as ________________________.
29. In an expanding economy, during inflation, the Fed may want to __________ the money supply.
This practice is known as ________________________.
30. Monetary policy, like fiscal policy, must be carefully _________ if it is to help the macroeconomy.
31. Incorrect timing or implementation of monetary policy can ________________ the business cycle.
32. An _________________ is the delay in implementing monetary policy, while an ______________
is the time it takes for monetary policy to have an effect.
33. Use Figure 16.11 Fiscal and Monetary Policy Tools (p. 434), to answer the following:
What fiscal policy tools are used for expansionary purposes? ______________________________
What monetary policy tools are used for expansionary purposes? ___________________________
_______________________________________________________________________________
What fiscal policy tools are used for contractionary purposes? _____________________________
What monetary policy tools are used for contractionary purposes? __________________________
_______________________________________________________________________________