What is Monetary Policy? - Definition, Role & Effects


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Which one of the following is the best explanation of monetary policy?

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1. If the Fed changes the amount of money a bank is required to retain rather than lend out, what policy tool is it using?

2. If the Fed lowers the interest rate it charges banks, what monetary tool is it using?

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About This Quiz & Worksheet

Monetary policy is an important component to economics and government. This quiz/worksheet will help you test your understanding of its definition and application.

Quiz & Worksheet Goals

In these assessments you'll be tested on the definitions and functioning of:

  • Monetary policy
  • Policy tools
  • Monetary tools
  • Open-market operations
  • Interest rates

Skills Practiced

This quiz and worksheet allow students to test the following skills:

  • Defining key concepts - ensure that you can accurately define monetary policy
  • Distinguishing differences - compare and contrast Fed policy and monetary tools
  • Information recall - access the knowledge you've gained regarding increasing interest rates

Additional Learning

To learn more about monetary policy, review the accompanying lesson, What is Monetary Policy? - Definition, Role and Effects. This lesson covers the following objectives:

  • Define monetary policy
  • Familiarize yourself with the conceptual framework of monetary policy
  • Understand the connection between money supply and banking
  • Know the Fed's monetary policy tools
  • Understand the relation between the Fed and interest rates