Understanding the Federal Reserve and Economy Quiz

Question 1

If the Fed raises interest rates, what usually happens to borrowing?

A It stays exactly the same

B It becomes more expensive

C It becomes cheaper

D It is prohibited by law

Question 2

What is the main tool the Fed uses to influence the economy?

A Setting the federal funds rate

B Deciding on personal income tax

C Printing coins for collectors

D Running public elections

Question 3

Why would the Fed lower interest rates?

A To stop people from saving money

B To increase bank profits only

C To slow down the economy

D To encourage spending and growth

Question 4

What happens when the Fed sells government securities?

A Money supply increases

B Money supply decreases

C Interest rates drop

D No change occurs

Question 5

What is the 'dual mandate' of the Fed?

A High taxes and low spending

B Global trade and war funding

C Max employment and stable prices

D Stock market gains and losses

Questions