Reserve Requirement, Open Market Operations and the Discount Rate


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question 1 of 3

Which of the following statements is FALSE about the monetary tools of the Federal Reserve?

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1. What happens if the Federal Reserve sells a large amount of government securities in the open market?

2. What is the prime rate?

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About This Quiz & Worksheet

The Federal Reserve controls the money supply of the United States using certain tools, including buying and selling government securities, manipulating reserve requirements, and manipulating the discount rate. This quiz/worksheet combo will help you test your knowledge on these paramount economic concepts. The practice questions on the quiz will test you on what the Fed can actually do to control the money supply, the effect of the Fed's actions in the open market, and certain monetary rates discussed in this lesson.

Quiz & Worksheet Goals

In these assessments, you'll be tested on your understanding of the following:

  • Specific tools that the Fed can use to control the money supply in this country
  • Effect of the sale of large amounts of government securities in the open market
  • Prime rate and federal funds rate

Skills Practiced

  • Reading comprehension - ensure that you draw the most important information from the related economics lesson
  • Critical thinking - apply relevant concepts to examine information about monetary policy in a different light
  • Defining key concepts - ensure that you can accurately define main phrases, such as the different rates discussed in the related lesson
  • Knowledge application - use your knowledge to answer questions about the Fed's open market operations and the reserve requirement

Additional Learning

To learn more about this topic, review the accompanying lesson Reserve Requirement, Open Market Operations and the Discount Rate. This lesson covers the following objectives:

  • Define the money supply
  • Understand the Federal Reserve's open market operations
  • Discuss the buying and selling of government securities in the open market
  • Know the meaning of the terms reserve requirements and discount rate