Federal Reserve Monetary Policy Concepts

The video explains the Federal Reserve's monetary policy, which involves actions to influence money and credit availability to achieve national economic goals like price stability and full employment. It details how the FED adjusts policy during recessions and inflationary periods, using tools like open market operations, the federal funds rate, and reserve requirements. The video also covers the FED's response to the 2008 financial crisis, highlighting its role in stabilizing the economy through measures like quantitative easing.

What is the primary goal of monetary policy as defined by the Federal Reserve?

• To control government spending

• To manage the stock market

• To influence the availability and cost of money and credit

• To regulate international trade

How does the Federal Reserve typically respond to a recession?

• By decreasing the money supply

• By increasing the money supply

• By raising interest rates

• By reducing government spending

What is the federal funds rate?

• The interest rate banks charge each other for overnight loans

• The interest rate on savings accounts

• The interest rate on consumer loans

• The rate at which the government borrows money

What are open market operations?

• The process of setting tax rates

• Buying and selling government securities to influence interest rates

• Regulating the stock market

• Issuing new currency

Why is maintaining low and stable inflation important?

• It reduces the need for monetary policy

• It encourages people to spend more

• It helps people make better financial decisions

• It increases government revenue

What is the discount rate?

• The rate at which the government borrows money

• The interest rate charged to commercial banks for overnight loans from the Federal Reserve

• The interest rate on savings accounts

• The interest rate on consumer credit cards

How does paying interest on reserves help the Federal Reserve control the money supply?

• It has no effect on the money supply

• It encourages banks to hold more reserves at the Federal Reserve

• It discourages banks from holding reserves

• It encourages banks to lend more money

What happens when the Federal Reserve lowers the reserve requirement for banks?

• Banks can lend out more money

• Banks have to hold more money in reserve

• Interest rates increase

• The money supply decreases

What was one of the Federal Reserve's actions during the financial crisis of 2007-2009?

• Increasing reserve requirements

• Decreasing the money supply

• Creating special forms of loans to banks

• Raising the federal funds rate

What is quantitative easing?

• Buying longer-term assets to lower long-term interest rates

• Increasing reserve requirements

• Selling government securities to reduce the money supply

• Raising short-term interest rates