Question

during the 1980s many savings and loan associations were having financial difficulties because of risky practices, deregulation and high interest rates and inflation. to help the fed increased its oversight through strict regulations, offered support through emergency loans and financed the resolution trust corporation to manage and resolve failed thrifts.
which duty was the fed fulfilling in this example?
hold reserves
assure stability
lend money
19
multiple choice 1 part
the federal reserve functions as the bank for us government which influences fiscal policy and overall economic stability. what challenges could come from this relationship?
the federal reserves direct control over government spending allows it to guarantee a balanced budget, minimizing economic fluctuations.
the governments reliance on the support of the federal reserve can lead to conflicts of interest in monetary policy.
during emergencies the federal reserve will only provide loans to the government to keep the economy stable and prevent inflation.
the federal reserve can make decisions without oversight and promote rapid economic growth
20
multiple choice 1 point
what is a key reason the federal reserve might approve a merger between banks?
to limit the number of banking institutions
to eliminate regulatory oversight of the banking sector
to increase competition in the banking industry
to ensure the stability by allowing stronger banks to absorb weaker ones

Explanation:

• First Question: The Fed's actions (increasing oversight, offering emergency loans, financing the Resolution Trust Corporation) are aimed at maintaining the stability of the financial system. "Hold reserves" is about banks keeping funds, not the actions described. "Lend money" is too narrow as the example involves more than just lending.
• Second Question: The government relying on the Federal Reserve can create conflicts. The Fed doesn't have direct control over government spending (so the first option is wrong). The Fed doesn't only provide loans during emergencies (third option wrong). The Fed has oversight (fourth option wrong).
• Third Question: Mergers where stronger banks absorb weaker ones can enhance stability. Limiting the number of institutions (first option) is not a key positive reason. Eliminating regulatory oversight (second option) is incorrect. Mergers usually reduce competition, not increase it (third option wrong).

Answer:

• First Question: Assume stability
• Second Question: The government’s reliance on the support of the Federal Reserve can lead to conflicts of interest in monetary policy.
• Third Question: To ensure the stability by allowing stronger banks to absorb weaker ones