1. What are the Federal Reserve's dual mandate goals? Maximum employment and price stability Low unemployment and high inflation Economic growth and low interest rates Rising stock market values and low interest rates

2. Suppose the economy weakens and employment falls short of maximum employment. Meanwhile, the inflation rate, has been steadily remaining around 2 percent. Which of the elements of the Fed's dual mandate would it be failing? Price stability Maximum employment Both price stability and maximum employment

3. Assume the economy is growing at a very fast rate; inflation has been above the Fed's 2 percent target for a considerable time and is rising. Which of the elements of the Fed's dual mandate would it be failing? Price stability Maximum employment Both price stability and maximum employment

4. Suppose that inflation were 10 percent and unemployment were 10 percent (note, unemployment is far above the natural rate of unemployment). Which of the elements of the Fed's dual mandate would it be failing? Price stability Maximum employment Both

5. The federal funds rate is the interest rate that ________. banks use to make overnight loans to one another the Fed uses to lend money to households the Fed uses to lend money to business firms banks use to lend money to the Fed

6. When the FOMC conducts monetary policy, it sets the target range for the federal funds rate. interest on reserve balances rate. the overnight reverse repurchase agreement rate. open market operations.

7. Which monetary policy implementation tool is the primary tool the Federal Reserve uses to steer the federal funds rate into the FOMC's target range? Open market operations Interest on reserve balances Overnight reverse repurchase agreement facility Discount Rate

8. How is the interest on reserve balances rate a reservation rate? Banks should not demand a higher rate for their funds. Banks should not be willing to accept a lower rate for their funds. Banks should not supply funds at a higher rate for their funds. Banks should demand lower rates for their funds.

9. When the interest rate on reserve balances rate is higher than the federal funds rate, how will banks likely respond? Banks will withdraw from their account at their Federal Reserve Bank and lend the funds in the federal funds market Banks will borrow in the federal funds market and deposit funds at their Federal Reserve Bank Banks will lend money to their best customers at the interest on reserve balances rate. Banks will seek to attract new funds from investors by offering the interest on reserve balances rate.

10. When the interest on reserve balances rate is higher than the federal funds rate, how will arbitrage pull the two rates together? The increase in competition for funds in the federal funds market will pull the federal funds rate higher. The increase in competition for funds in the federal funds market will push the federal funds rate lower. When banks deposit funds in their reserve accounts at the Fed, it will pull the interest on reserve balances rate higher. When banks deposit funds in their reserve accounts at the Fed, it will push the interest on reserve balances rate lower.

11. Which monetary policy tool is a supplementary tool that sets a floor for the federal funds rate? Open Market Operations Interest on reserve balances Overnight reverse repurchase agreement facility Discount Rate

12. Which monetary policy tool serves as a ceiling for the federal funds rate? Open market operations Interest on reserve balances Overnight reverse repurchases agreement facility Discount rate

13. Assume economic growth is very strong and the inflation rate has been above the Fed's price stability goal for some time. Which of the following would best describe an appropriate policy action? Raise the target range for the federal funds rate and simultaneously increase the interest on reserve balances rate, overnight reverse repurchase agreement rate, and discount rate. Raise the target range for the federal funds rate and use open market operations to decrease the level of reserves in the banking system. Lower the target range for the federal funds rate and simultaneously decrease the interest on reserves rate, overnight reverse repurchase agreement rate, and discount rate Lower the target range for the federal funds rate and simultaneously raise the interest on reserve balances rate and the discount rate, and lower the overnight reverse repurchases agreement rate.

14. What role do open market operations play in monetary policy? The Fed uses open market operations to move the federal funds rate higher or lower. The Fed uses open market operations to move the interest on reserve balances rate higher or lower. The Fed uses open market operations to move the discount rate higher or lower The Fed uses open market operations to ensure that the level of reserves remains ample.

15. Expansionary monetary policy will be very effective if firms sharply increase the number of investment projects undertaken when interest rates ____ and sharply reduce the number of investment projects undertaken when interest rates ____. fall; rise rise; fall fall; fall rise; rise