Deck 2: The Federal Reserve and Its Powers

Question 1

The Discount Rate is a direct control on the money supply.

Answer 1

False

Question 2

Open market purchases by the Fed reduce total reserves in the banking system.

Answer 2

False

Question 3

Federal Reserve regulations affect many nonbank institutions.

Answer 3

True

Question 4

The Federal Reserve is independently funded and thus immune to any political pressure.

Question 5

The Federal Reserve System replaced the National Banking system.

Question 6

Deposits should expand when the Fed sells securities.

Question 7

The Federal Open Market Committee basically establishes our nation's monetary policy.

Question 8

Deposits should expand when reserve requirements increase.

Question 9

Currency is an asset of the Federal Reserve Banks.

Question 10

In the check-clearing system DACI usually exceeds CIPC, creating Fed float.

Question 11

Depository institutions create money when they lend or invest excess reserves.

Question 12

The first impact of monetary policy upon depository institutions is via excess reserves.

Question 13

The Fed is this nation's first permanent central bank.

Question 14

An increase in the money supply does not affect the supply of loanable funds.

Question 15

The Fed can change the level of member bank reserves as well as reserve requirements.

Question 16

Monetary policy is a highly partisan issue.

Question 17

The Fed's most influential tool is reserve requirements.

Question 18

A decrease in Federal Reserve float decreases member bank reserves.

Question 19

A decrease in reserve requirements increases the total level of member bank reserves.

Question 20

A primary function of the Fed is economic stabilization via control of the money supply.

Question 21

Margin requirements are an important regulatory power of the Fed.

Question 22

A Fed governor has a lifetime appointment.

Question 23

Reserve requirements are not considered a viable tool of monetary policy.

Question 24

As the Fed expands the monetary base, bank loans and investments should expand also.

Question 25

The seven members of the Board of Governors of the Federal Reserve System serve 14 year nonrenewable terms. Each Board member is appointed by the President and confirmed by the Senate.

Question 26

The "monetary base" comprises the Fed's most important assets.

Question 27

All national banks must join the Federal Reserve System.

Question 28

Congress is powerless over the Fed.

Question 29

The current chair of Federal Reserve is Joe Biden.

Question 30

Reserve requirements apply only to member banks in Federal Reserve System.

Question 31

Excess reserves cost a depository institution nothing to maintain.

Question 32

Excess reserve balances pay interest; required reserve balances do not.

Question 33

Open Market Operations are the primary tool of monetary policy today.

Question 34

Though decentralized in geography, today's Fed is highly centralized in power structure.

Question 35

The major asset of the Federal Reserve is the U.S. Treasury securities, and the major liability is currency outside banks.

Question 36

No two Governors may be from the same Federal Reserve District.

Question 37

The monetary base comprises currency in circulation and checks not yet cleared.

Question 38

The Federal Reserve Bank of New York is the "headquarters" of open market operations.

Question 39

If the FOMC wished to slow down economic growth and lower down the price level, they could issue a policy directive to the Federal Reserve Board Trading desk to purchase U.S. government securities.

Question 40

The Chairman of the Fed is highly visible, but not very powerful.

Question 41

Number of Federal Reserve Governors plus size of FOMC less number of Federal Reserve banks equals:

A) 9.
B) 7.
C) 14.
D) 12.

Question 42

Reserve requirements apply to

A) National banks
B) State banks
C) Savings-and-loan associations
D) All of the above

Question 43

The Treasury draws most of its checks upon

A) the Comptroller of the Currency.
B) national banks.
C) Federal Reserve banks.
D) its own required reserves

Question 44

The asset of Federal Reserve banks associated with open market operations is

A) Federal Reserve notes.
B) U.S. government securities.
C) loans to member banks.
D) float.

Question 45

The data above exemplify

A) an arguable underutilization of resources, at least for the moment
B) an excess reserve position
C) a near-term likelihood that loans and deposits will expand
D) all of the above

Question 46

When the New York Fed sells Treasury securities to a securities dealer

A) depository institutions deposits in the Fed decrease.
B) depository institutions deposits in the Fed increase.
C) the deposit balance of the security dealer in its bank decreases.
D) both a and c above.

Question 47

Which of the following can be associated with original objectives of the Fed?

A) coordinate an efficient payments mechanism.
B) provide an elastic money supply.
C) serve as lender of last resort.
D) all of the above

Question 48

The Fed's primary tools of monetary policy include all the following except

A) changing the discount rate.
B) open market operations.
C) adjusting reserve requirements.
D) changes in the Federal Funds rate.

Question 49

Which Fed action does NOT directly increase total reserves in the banking system?

A) Lowering the Discount Rate
B) Lowering reserve requirements
C) Buying U.S. Government securities on the open market
D) None of the above

Question 50

The data above could exemplify a direct, immediate effect of any of the following except

A) an open market sale by the Fed
B) a lowering of reserve requirements by the Fed
C) a new loan at the Discount Window by the Fed
D) an open market purchase by the Fed

Question 51

The Fed's most visible monetary tool is probably

A) open market operations.
B) change in reserve requirements.
C) Reg Z.
D) discount rate policy

Question 52

The primary responsibility of the Federal Open Market Committee (FOMC) is to

A) set monetary policy
B) supervise and examine member banks.
C) guarantee excess reserves to National Banks.
D) enforce margin requirements Use this data to answer questions 4-6:
Total Reserves $80,000,000; Reserve Requirement 5%; Total Deposits $700,000,000.

Question 53

The 12 Federal Reserve Banks are

A) Important and autonomous components of a "decentralized central bank"
B) Important components of the Fed, but no longer very autonomous
C) Neither important nor autonomous
D) All permanently voting members of the FOMC

Question 54

Federal Reserve float

A) is the "lag time" required for monetary policy to take effect
B) represents a net extension of credit by the Fed, which increases bank reserves.
C) represents a net liability of the Fed.
D) is DACI minus CIPC.

Question 55

Which of the following is in the correct historical order?

A) Second Bank of the United States, Federal Reserve Act, Crash of 1907
B) Crash of 1907, Federal Reserve Act, National Banking Acts
C) First Bank of the United States, Crash of 1907, National Banking Acts
D) Second Bank of the United States, National Banking Acts, Federal Reserve Act

Question 56

Federal Reserve notes held in bank vaults are the liability or obligation of

A) the Fed.
B) the Treasury.
C) the bank.
D) none of the above

Question 57

The purchase of government securities by the Fed will

A) decrease the money supply.
B) increase security prices.
C) increase interest rates.
D) decrease credit availability.

Question 58

Using the data above, the level of excess reserves is

A) $ 4,000,000
B) $ 45,000,000
C) $ 70,000,000
D) not ascertainable

Question 59

For what purposes do depository institutions keep deposits in the Federal Reserve banks?

A) for clearing checks
B) to satisfy reserve requirements
C) to earn interest
D) a and b

Question 60

To increase the money supply immediately but just slightly, the Fed would most likely

A) Buy securities on the open market
B) Lower the Discount Rate
C) Lower reserve requirements
D) Any of the above would be suitable for this purpose.

Question 61

Assume the Fed pays $1000 for a government bond on the open market. With a 5% reserve requirement, what is the theoretical ultimate addition to the money supply, and why?

Question 62

Compare and contrast the "tools of monetary policy" in terms of their relative usefulness.

Question 63

The Fed changes reserve requirements from 10% to 7%, thereby creating $900 million in excess reserves. The total change in deposits (with no drains) would be

A) $3,000 million
B) $12,857 million
C) $13,652 million
D) $15,795 million

Question 64

Which of the following was a responsibility of the early Federal Reserve System?

A) to control the money supply
B) to safeguard the national payment system
C) to establish a more rigorous bank supervisory system
D) all of the above

Question 65

The fed funds rate is the rate that

A) Banks charge each other on loans of excess reserves
B) Banks charge to lend foreign exchange to customers
C) The Federal Reserve charges on emergency loans to commercial banks
D) Banks charge for loans to corporate customers
ESSAY QUESTIONS

Question 66

The Fed's most important duty is to

A) regulate national banks
B) print currency
C) establish the nation's monetary policy
D) stimulate the economy

Question 67

Who among the following does NOT have a permanent vote on the FOMC?

A) President, Federal Reserve Bank of New York
B) Chairman, Board of Governors
C) President, Federal Reserve Bank of Los Angeles
D) Members of the Board of Governors

Question 68

Explain why the Federal Reserve is less "independent" than it appears to be.

Question 69

Reforms and regulatory changes in U.S. financial institutions are best associated with:

A) international events affecting U.S. financial institutions.
B) periods of severe economic and financial problems in the U.S. economy.
C) voter changing the majority party in Congress.
D) recommendations of presidential commissions.

Question 70

The major asset of the Federal Reserve is

A) The U.S. Treasury securities
B) Depository institution reserves
C) Currency outside banks
D) Vault cash of commercial banks
E) Gold and foreign exchange

Question 71

An increase in Federal Reserve float

A) decreases bank reserve deposits in the Fed.
B) increases bank reserve deposits in the Fed.
C) has no impact upon bank reserves deposits in the Fed.
D) reduces the net loan granted by the Fed to member banks.

Question 72

Which of the following can be associated with the modern objectives of the Fed?

A) coordinate an efficient payments mechanism.
B) provide an elastic money supply.
C) regulate the financial system.
D) all of the above.

Question 73

Nationally chartered banks receive chartering and merger approval from the

A) Federal Deposit Insurance Corporation
B) Office of Comptroller of the Currency
C) Federal Reserve System
D) Office of Thrift Supervision

Question 74

The Fed's non-monetary or regulatory powers do NOT include

A) Margin requirements
B) Interest rate disclosures on deposits
C) Investigation and prosecution of counterfeiting
D) Bank holding companies

Question 75

The Federal Reserve System established

A) a system for federal chartering of banks.
B) a system for controlling bank note issuance.
C) a source of liquidity for the banking system.
D) the beginning of demand deposit accounts.

Question 76

The Discount Window

A) is a common way for depository institutions to raise loanable funds
B) relates to the Fed's "lender of last resort" function
C) is a relatively recent innovation in the design of the Federal Reserve System
D) is available only during emergencies

Question 77

All of the following are locations of Federal Reserve Banks except

A) San Francisco
B) Dallas
C) Washington, DC
D) Kansas City

Question 78

Increases in the Fed's assets

A) decrease the monetary base
B) increase the monetary base
C) have no effect on the monetary base.
D) none of the above

Question 79

How has the power structure of the Fed changed since 1913?

Question 80

There are ______ members of the Federal Reserve Board of Governors, ????_______ members of the Federal Open Market Committee, and ________ Federal Reserve Banks.

A) 12; 7; 12
B) 7; 14; 12
C) 14; 12; 12
D) 7; 12; 12