Determine if these statements are true or false. a. The Federal Reserve chooses how much banks lend.
b. The Federal Reserve serves as a lender of last resort.
c. The Federal Reserve loans money to banks.
d. The Federal Reserve sets a target for the federal funds rate.
e. The federal funds rate matters only to banks.

a. The Federal Reserve chooses how much banks lend.  FALSE.

Banks get the choose how much they lend out to people but the Fed can limit their loanable funds by imposing a required reserve. When it comes to the individual amounts the bank can loan out however, the Fed has no control.

b. The Federal Reserve serves as a lender of last resort.  TRUE.

As the Central Bank system of the United States, the Fed acts as a lender of last resort for banks.

c. The Federal Reserve loans money to banks.  TRUE.

The Fed can loan out money to banks and it does so at the Discount rate.

d. The Federal Reserve sets a target for the federal funds rate.  TRUE

One of the duties of the Fed is to set a target for the Federal funds rate which is the rate that banks use to borrow money amongst themselves overnight.

e. The federal funds rate matters only to banks. FALSE.

The federal funds rate affect the entire financial system because it can affect the cost of borrowing which can either increase the amounts people borrow or decrease it.

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