Economic Factors and Business Cycles Flashcards
7 cards from real SIE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Economic Factors and Business Cycles flashcards as text
Which of the following is the Federal Reserve's primary tool for implementing monetary policy?
Answer: Adjusting the federal funds rate
The Federal Reserve primarily uses the federal funds rate — the rate at which banks lend to each other overnight — as its main tool to influence monetary conditions.
When the Federal Reserve raises interest rates, what is the typical effect on existing fixed-rate bond prices?
Answer: Bond prices decrease
When interest rates rise, existing bonds paying lower fixed rates become less attractive compared to new bonds, causing their market prices to fall.
Expansionary fiscal policy is best described as:
Answer: Decreasing taxes and/or increasing government spending to stimulate the economy
Expansionary fiscal policy uses lower taxes and/or higher government spending to inject money into the economy and stimulate growth, especially during recessions.
Open market operations conducted by the Federal Reserve refer to:
Answer: The Fed's purchase or sale of U.S. government securities to influence the money supply
Open market operations involve the Federal Reserve buying or selling U.S. government securities to expand or contract the money supply and influence interest rates.
To combat rising inflation, the Federal Reserve would most likely:
Answer: Sell government securities on the open market
Selling government securities withdraws money from the banking system, reducing the money supply and raising interest rates, which slows inflation.
The discount rate is best defined as:
Answer: The rate at which the Federal Reserve lends money to member banks
The discount rate is the interest rate the Federal Reserve charges commercial banks when they borrow directly from the Fed's discount window.
When the Federal Reserve purchases government securities through open market operations, the effect on the money supply is:
Answer: The money supply increases
When the Fed buys government securities, it pays for them by crediting bank accounts, injecting money into the banking system and increasing the money supply.