Rule 4 of 5 in this unit1.3.1

1.3.1 The Federal Reserve Board’s Impact on Business Activity and Market Stability

SIE outline 1.3.1

The Fed's Other Job: Regulation T

12 CFR 220, credit by brokers and dealers. Same author, a different job from monetary policy. NOT part of open market operations.

The method for this kind of question
  1. Name the committee, not just the building

Now answer

2 questions on this screen, from this outline item's own pool, so some will test a rule you met earlier in the unit. Pick an answer, say how sure you are, then reveal. Being sure and wrong is the most useful thing that can happen here, and the coach treats it that way.

Question 1Exam level

Congress passes legislation cutting federal income tax rates to stimulate demand. This action is:

How sure are you?

Correct: B. Taxation is a fiscal instrument, enacted by Congress and administered by the Treasury.
A. The Federal Reserve holds no taxing power; its levers reach money and credit, not tax law.
C. An open market operation is the Fed's trading desk buying or selling government securities, which no tax bill involves.
D. A reserve requirement is a ratio the Board of Governors sets on bank deposits, not tax law.

Unit: SIE outline 1.3.1

Question 2Harder

The Federal Reserve wants the federal funds rate to fall. What does it actually do?

How sure are you?

Correct: B. The federal funds rate is a market rate; the FOMC sets a target range and steers the market toward it, mainly through open market operations.
A. The Fed does not decree the federal funds rate; it is set in the market between banks.
C. Raising the discount rate would push borrowing costs up, the opposite direction from the stated goal, and it is a separate tool from targeting fed funds.
D. No legislation is involved; this is entirely within the Fed's own monetary tools.

Unit: SIE outline 1.3.1

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