6.01 The Federal Reserve System and Monetary Policy

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Choose the correct tool to help remedy the problems facing the economy. For each economic ailment listed in the first column, you should adjust and determine the following:

• Should the reserve requirement be raised or lowered?
• Should the discount rate be raised or lowered?
• Should the federal funds rate be raised or lowered?
• Should bonds be bought or sold?
• Is the money supply increasing or decreasing?
• Are the interest rates increasing or decreasing?
• Is the overall monetary policy expansionary/easy or contractionary/tight?

Monetary Policy Tools Practice Chart

Economic Ailment	Reserve Requirement (Raise or Lower?)	Discount Rate (Raise or Lower?)	Federal Funds Rate (Raise or Lower?)	Open Market Operations (Buy or Sell Bonds?)	Is the Money Supply Increasing or Decreasing?	Are Interest Rates (the Price of Money) Increasing or Decreasing?	Overall Policy (Expansionary/Easy Monetary Policy or Contractionary/Tight Monetary Policy?)
Slow growth in GDP	Check It	Check It	Check It	Check It	Check It	Check It	Check It
Prices are going too high	Check It	Check It	Check It	Check It	Check It	Check It	Check It
Recession	Check It	Check It	Check It	Check It	Check It	Check It	Check It
Inflation	Check It	Check It	Check It	Check It	Check It	Check It	Check It
Depression	Check It	Check It	Check It	Check It	Check It	Check It	Check It
Unemployment	Check It	Check It	Check It	Check It	Check It	Check It	Check It