Monetary policy and federal reserve quiz
Monetary policy is a tool through which the government controls the money supply. Play this exciting "Monetary Policy And Federal Reserve" quiz to learn more about the topic. This quiz contains questions ranging from easy, medium to hard levels that will familiarize you with the concept and will also gauge your understanding of the subject. Attempt the quiz to know more. If you find the quiz informative, do share it with others. All the best!
Questions and Answers
- 1.
Aim of monetary policy is to?
- A.
Bring economic sability
- B.
Prevent inflationary and recessionary economic periods
- C.
Prevent fiscal deficit
- D.
All of the above
Correct Answer
B. Prevent inflationary and recessionary economic periodsExplanation
The aim of monetary policy is to prevent inflationary and recessionary economic periods. This is achieved by controlling the money supply and interest rates in the economy. By adjusting these variables, central banks can influence borrowing costs, investment levels, and consumer spending, which in turn can help stabilize prices and promote economic growth. By preventing excessive inflation or recession, monetary policy aims to maintain price stability and promote sustainable economic development.Rate this question:
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- 2.
What are the government's two main monetary policy tools?
- A.
Inflation and spending
- B.
Taxes and inflation
- C.
Taxes and government spending
- D.
None of the above
Correct Answer
C. Taxes and government spendingExplanation
The government's two main monetary policy tools are taxes and government spending. Taxes are used to regulate the amount of money in circulation by either increasing or decreasing the amount of money individuals and businesses have available to spend. Government spending, on the other hand, involves the government's use of funds to stimulate or slow down the economy. By adjusting these two factors, the government can influence economic growth, control inflation, and stabilize the economy.Rate this question:
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- 3.
What would the federal government do with government spending in an inflationary environment?
- A.
Increase it
- B.
Do nothing
- C.
Decrease it
- D.
First increase it and then decrease it
Correct Answer
C. Decrease itExplanation
In an inflationary environment, the prices of goods and services are rising. To combat inflation, the federal government would decrease government spending. This is because reducing government spending helps to reduce the amount of money circulating in the economy, which can help to lower demand and therefore lower prices. By decreasing government spending, the government aims to control inflation and stabilize the economy.Rate this question:
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- 4.
What would the federal government do with taxes if there was an economic downturn?
- A.
Increase them
- B.
Decrease them
- C.
First increase and decrease them
- D.
Keep them as it is
Correct Answer
B. Decrease themExplanation
During an economic downturn, the federal government would likely decrease taxes. This is because reducing taxes can stimulate economic growth by putting more money into the hands of consumers and businesses. By decreasing taxes, individuals and businesses will have more disposable income, allowing them to spend and invest more, which can help boost economic activity. Additionally, lower taxes can incentivize businesses to expand and hire more workers, further stimulating the economy. Therefore, decreasing taxes during an economic downturn can be a strategy employed by the government to mitigate the negative effects and promote economic recovery.Rate this question:
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- 5.
Which of the following is not a function of money?
- A.
Medium of Exchange
- B.
Store of Value
- C.
Durability
- D.
Unit of Account
Correct Answer
C. DurabilityExplanation
Durability is not a function of money because it refers to the ability of money to withstand wear and tear over time. While durability is an important characteristic of physical currency, it is not a fundamental function of money. The primary functions of money include being a medium of exchange, a store of value, and a unit of account. Money serves as a medium of exchange by facilitating the exchange of goods and services. It acts as a store of value by retaining its purchasing power over time. And it functions as a unit of account by providing a common measure of value for goods and services.Rate this question:
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- 6.
Which of the following does not belong to the Federal Reserve System's purview?
- A.
To control the money supply
- B.
To supervise and regulate banks
- C.
To aid in the check clearing process
- D.
All of the above
Correct Answer
D. All of the aboveExplanation
The correct answer is "All of the above." This means that all of the options listed (controlling the money supply, supervising and regulating banks, and aiding in the check clearing process) do not belong to the Federal Reserve System's purview. The Federal Reserve System is responsible for these functions, so the answer "All of the above" indicates that none of these options are excluded from its purview.Rate this question:
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- 7.
Which of the following measures enhanced financial institution competition while giving the Fed more authority over banks that are not members?
- A.
The Thrift Bailout Bill
- B.
The Federal Reserve Act.
- C.
The Equal Credit Opportunity Ac
- D.
The Monetary Control Act.
Correct Answer
D. The Monetary Control Act.Explanation
The correct answer is The Monetary Control Act. The Monetary Control Act was enacted in 1980 and aimed to enhance financial institution competition while giving the Federal Reserve more authority over banks that are not members. It expanded the Federal Reserve's regulatory powers and allowed them to set reserve requirements for all depository institutions, not just member banks. This act also required all depository institutions to have deposit accounts with the Federal Reserve, which increased the Fed's control and oversight over the banking system.Rate this question:
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- 8.
Which of the following entity make decisions regarding the Fed's purchases and sales of government securities:
- A.
Discount Committee (DC)
- B.
Federal Open Market Committee (FOMC)
- C.
Federal Deposit Insurance Commission (FDIC)
- D.
Federal Funds Committee (FFC)
Correct Answer
B. Federal Open Market Committee (FOMC)Explanation
The correct answer is Federal Open Market Committee (FOMC). The FOMC is responsible for making decisions regarding the Federal Reserve's purchases and sales of government securities. This committee consists of members from the Federal Reserve Board of Governors and regional Reserve Bank presidents. They meet regularly to discuss and determine monetary policy, including decisions on open market operations. These decisions have a significant impact on the economy, as they can influence interest rates, money supply, and overall financial conditions.Rate this question:
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- 9.
Money that has value because it has been recognized by the government is called.
- A.
Currency
- B.
Commodity Money
- C.
Fiat Money
- D.
Coins
Correct Answer
C. Fiat MoneyExplanation
Fiat money is the correct answer because it refers to money that has value because it has been recognized by the government. Unlike commodity money, which has intrinsic value, fiat money has value because the government declares it as legal tender. This means that people must accept it as a form of payment. Coins are a type of currency, but not all currency is in the form of coins. Therefore, fiat money is the most accurate term to describe money that has value because it has been recognized by the government.Rate this question:
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- 10.
When was the Federal reserve system established?
- A.
1905
- B.
1899
- C.
1913
- D.
1910
Correct Answer
C. 1913Explanation
The correct answer is 1913. The Federal Reserve System was established in 1913 with the passing of the Federal Reserve Act. It was created in response to a series of financial panics and economic downturns in the late 19th and early 20th centuries. The Federal Reserve System serves as the central bank of the United States and is responsible for regulating and overseeing the country's banking system, conducting monetary policy, and stabilizing the economy.Rate this question:
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Current Version
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Aug 16, 2023Quiz Edited by
ProProfs Editorial Team -
Nov 13, 2022Quiz Created by
Amit Mangal
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