FI 412 Exam 1 Questions with 100%
Correct Answers
Federal Open Market Committee - the Fed body that makes U.S. monetary
policy decisions. Correct Answer: What does FOMC stand for?
7 members of the Fed Board of Governors + 5 Federal Reserve District Bank
presidents (NY Fed always included, 4 rotate). Correct Answer: Who are the 12
voting members of the FOMC?
Promote maximum employment and stable prices (plus moderate long-term
interest rates). Correct Answer: What is the Fed's dual mandate?
Target range for the federal funds rate (FFR). Correct Answer: What is the Fed's
main monetary policy tool?
Directly influences short-term rates (T-bills, repos, CDs); indirectly influences long-
term rates (10-year Treasury, 30-year mortgage). Correct Answer: How does the
FFR affect interest rates?
Expansionary / loose-money policy: lower rates to boost borrowing, spending,
and employment. Correct Answer: What is stimulative monetary policy?
Contractionary / tight-money policy: higher rates to slow borrowing, cool
demand, and reduce inflation. Correct Answer: What is restrictive monetary
policy?
High inflation + high unemployment. Raising rates worsens unemployment;
cutting rates worsens inflation. Correct Answer: What is stagflation and why is it
hard to fix?
, Gradually cut the FFR after the bubble burst to support growth. Correct Answer:
How did the Fed respond to the Dot-com Bubble (2001)?
Aggressively cut FFR to near 0 and launched quantitative easing (QE). Correct
Answer: How did the Fed respond to the 2008 Financial Crisis?
Emergency rate cuts to near 0 and massive QE purchases. Correct Answer: How
did the Fed respond to Covid-19 (2020)?
Raised FFR aggressively to fight rising prices. Correct Answer: How did the Fed
respond to inflation in 2022?
Fed purchases of long-term securities (Treasuries, MBS) to lower long-term rates
and stimulate the economy. Correct Answer: What is quantitative easing (QE)?
4.25% - 4.50%. Correct Answer: What is the current FFR range (per slides)?
CME FedWatch tool (market expectations) and FOMC dot plot (official
projections). Correct Answer: What tools help predict Fed policy expectations?
Boost economic activity and reduce unemployment by making borrowing
cheaper. Correct Answer: What is the purpose of stimulative monetary policy?
Cool economic activity and reduce inflation by making borrowing more
expensive. Correct Answer: What is the purpose of restrictive monetary policy?
Any possession that has value in an exchange. Correct Answer: What is an
asset?
Tangible = physical (land, buildings, machinery). Intangible = legal claims to
future benefit (stocks, bonds, patents, securities). Correct Answer: Difference
between tangible and intangible assets
Correct Answers
Federal Open Market Committee - the Fed body that makes U.S. monetary
policy decisions. Correct Answer: What does FOMC stand for?
7 members of the Fed Board of Governors + 5 Federal Reserve District Bank
presidents (NY Fed always included, 4 rotate). Correct Answer: Who are the 12
voting members of the FOMC?
Promote maximum employment and stable prices (plus moderate long-term
interest rates). Correct Answer: What is the Fed's dual mandate?
Target range for the federal funds rate (FFR). Correct Answer: What is the Fed's
main monetary policy tool?
Directly influences short-term rates (T-bills, repos, CDs); indirectly influences long-
term rates (10-year Treasury, 30-year mortgage). Correct Answer: How does the
FFR affect interest rates?
Expansionary / loose-money policy: lower rates to boost borrowing, spending,
and employment. Correct Answer: What is stimulative monetary policy?
Contractionary / tight-money policy: higher rates to slow borrowing, cool
demand, and reduce inflation. Correct Answer: What is restrictive monetary
policy?
High inflation + high unemployment. Raising rates worsens unemployment;
cutting rates worsens inflation. Correct Answer: What is stagflation and why is it
hard to fix?
, Gradually cut the FFR after the bubble burst to support growth. Correct Answer:
How did the Fed respond to the Dot-com Bubble (2001)?
Aggressively cut FFR to near 0 and launched quantitative easing (QE). Correct
Answer: How did the Fed respond to the 2008 Financial Crisis?
Emergency rate cuts to near 0 and massive QE purchases. Correct Answer: How
did the Fed respond to Covid-19 (2020)?
Raised FFR aggressively to fight rising prices. Correct Answer: How did the Fed
respond to inflation in 2022?
Fed purchases of long-term securities (Treasuries, MBS) to lower long-term rates
and stimulate the economy. Correct Answer: What is quantitative easing (QE)?
4.25% - 4.50%. Correct Answer: What is the current FFR range (per slides)?
CME FedWatch tool (market expectations) and FOMC dot plot (official
projections). Correct Answer: What tools help predict Fed policy expectations?
Boost economic activity and reduce unemployment by making borrowing
cheaper. Correct Answer: What is the purpose of stimulative monetary policy?
Cool economic activity and reduce inflation by making borrowing more
expensive. Correct Answer: What is the purpose of restrictive monetary policy?
Any possession that has value in an exchange. Correct Answer: What is an
asset?
Tangible = physical (land, buildings, machinery). Intangible = legal claims to
future benefit (stocks, bonds, patents, securities). Correct Answer: Difference
between tangible and intangible assets
