The Purpose of the Commitment by the Fed to Keep

question 101

Multiple Choice

The purpose of the commitment by the Fed to keep the federal funds rate at zero for a long period of time is to

• A)lower the long term interest rates.
• B)lower the short term interest rates.
• C)increase the long term interest rates.
• D)increase the short term interest rates.

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Definitions:

Fed

The central banking system in the United States, known as the Federal Reserve System, is in charge of managing the country's monetary policy.

Open Market

A marketplace that is open to all participants and where goods, securities, currencies, and other items can be bought and sold.

Simple Money Multiplier

A formula used to determine the maximum amount of money that can be created by a bank's deposits under a fractional reserve banking system.

Required Reserve Ratio

The fraction of deposits that banks are legally mandated to keep as reserves and not lend out.