Question

1. The responsibilities of the U.S. Federal Reserve System include ________.

overseeing the banking system and regulating the quantity of money in the economy

setting the level of real interest rates

working with Congress to devise a financial plan for the country and execute the President's orders

calculating and reporting the unemployment rate

2. To increase the supply of money when the economy is weak, the Fed ________.

closes banks

reduces inflation

sells bonds

buys bonds

3. The federal funds rate is the short-term interest rate that ________.

banks charge their best customers when borrowing

banks earn on savings accounts with the Fed

banks charge each other when borrowing or lending to each other

the Fed charges banks when borrowing

4. When the Fed increases the money supply and consequently lowers interest rates, the value of the dollar ________.

will rise by more in the market for foreign exchange, all else equal

will fall, all else equal

is not impacted by Fed policy

will rise, all else equal

Answer 1

1. overseeing the banking system: Not only as a lender of last resort, Fed also works as a vigilator to keep a watch on the entire working system to check any unsolicited behaviour on the parts of commercial banks.

2. Buy bonds, This is done via open market purchases. With bonds in its account it releases funds to banks that is used as loans to consumers. This increases the quantity of money available in the economy.

3. banks charge each other. It is under the sole direction of the Fed and becomes an important monetary policy tool.

4. will fall, all else equal. Reduction in interest rate will naturally occur as money supply is increased and banks compete to advance loans. Inflation rises and value of dollar falls.