Deck 15: The Federal Reserve System and Open Market Operations

Question 1

Which is NOT true of the Federal Reserve System?

A) It maintains the bank account of the U.S. Treasury.
B) It carries out policies passed by the federal government.
C) It regulates the nation's money supply.
D) It serves as the banker's bank.

Answer 1

It carries out policies passed by the federal government.

Question 2

As the government's bank, the Fed does NOT:

A) manage the borrowing of the U.S. Treasury.
B) maintain the bank account of the U.S. Treasury.
C) conduct the issuing, transferring, and redeeming of U.S. Treasury bonds.
D) approve the transactions involving corporate bonds and stocks.

Answer 2

approve the transactions involving corporate bonds and stocks.

Question 3

Which is NOT a duty performed by the Federal Reserve System?

A) manage the nation's payment system
B) print money
C) regulate the U.S. banking system
D) maintain the bank account for the U.S. Treasury

Answer 3

print money

Question 4

Who was chair of Federal Reserve System during the financial crisis of 2008?

A) Tim Geithner
B) Paul Volcker
C) Ben Bernanke
D) Janet Yellen

Question 5

Which institution usually has the most influence over aggregate demand in the United States?

A) the Senate Banking Committee
B) the U.S. Department of the Treasury
C) the Comptroller of the Currency
D) the Federal Reserve

Question 6

The Federal Reserve:

A) clears all checks.
B) regulates the banking system.
C) prints all currency.
D) makes loans to individuals.

Question 7

The world's largest bank customer is:

A) the Federal Reserve.
B) the U.S. Treasury.
C) the FDIC.
D) the SEC.

Question 8

Bank notes are issued by:

A) the leading financial institutions of the United States.
B) investment houses and banks.
C) the Federal Reserve only.
D) private banks and the Federal Reserve.

Question 9

The Federal Reserve is the:

A) federal government's bank.
B) U.S. central bank.
C) banker's bank in the United States.
D) federal government's bank, central bank, and banker's bank in the United States.

Question 10

Which is NOT a function of the Federal Reserve?

A) serving as the lender of last resort
B) regulating the U.S. financial system
C) regulating the U.S. money supply
D) providing loans to small businesses

Question 11

The paper currency circulated in the United States is called:

A) an American note.
B) a bank note.
C) a United States note.
D) a Federal Reserve note.

Question 12

Ben Bernanke was _____ during the financial crisis of 2008.

A) Secretary of the U.S. Treasury
B) Chairman of the President's Council of Economic Advisors
C) Vice President of the United States
D) Chairman of the Federal Reserve

Question 13

The Federal Reserve acquires its unique powers through its ability to:

A) set the consumer price index.
B) intervene in the bond markets.
C) issue money.
D) oversee banking operations.

Question 14

The government's bank and the bankers' bank in the United States are called the:

A) central bank.
B) Federal Reserve System.
C) Bank of America.
D) Bank of the United States.

Question 15

When the U.S. Treasury borrows, the borrowing is managed by the:

A) Treasury itself.
B) Senate Banking Committee.
C) Comptroller of the Currency.
D) Federal Reserve.

Question 16

The Federal Reserve:

A) clears all checks.
B) conducts monetary policy.
C) prints all currency.
D) makes loans to individuals.

Question 17

Which is NOT a duty performed by the Federal Reserve System?

A) create money
B) manage the borrowing and issuing of bonds for the U.S. Treasury
C) manage the federal budget deficit
D) act as a bank for large commercial banks

Question 18

The Federal Reserve acquires its exclusive powers through its ability to:

A) tax individuals and firms.
B) stop economic recessions.
C) issue money.
D) make loans.

Question 19

U.S. currency is printed by the:

A) U.S. Department of the Treasury.
B) Federal Reserve.
C) Comptroller of the Currency.
D) President's Council of Economic Advisors.

Question 20

The Federal Reserve can influence the economy by shifting:

A) the AD curve.
B) the SRAS curve.
C) the LRAS curve.
D) the AD, SRAS, and LRAS curves.

Question 21

The monetary base (MB) refers to:

A) currency.
B) currency plus total reserves held at the Fed.
C) currency plus checkable deposits.
D) currency, savings deposits, money market mutual funds, and small time deposits.

Question 22

What part of the money pyramid does the Fed have direct control over?

A) the monetary base
B) M1
C) the monetary base plus M1
D) M2

Question 23

Which asset would you classify as being most liquid?

A) small-time deposits
B) small-cut diamonds
C) an oil painting by Claude Monet
D) money market mutual funds

Question 24

M2 refers to:

A) currency.
B) currency plus total reserves held at the Fed.
C) currency plus checkable deposits.
D) currency, checkable deposits, savings deposits, money market mutual funds, and small-time deposits.

Question 25

Use the following to answer questions: Table: Statistics for a Small Economy $$\begin{array} { l c } \hline \text { Item } & \text { Value in dollars (\$) } \\\hline \text { Cash held by public } & 7 \text { million } \\\text { Small-time deposits } & 30 \text { million } \\\text { Money market mutual funds } & 18 \text { million } \\\text { Checkable deposits } & 36 \text { million } \\\text { Currency \& total reserves at the Fed } & 12 \text { million } \\\text { Large-time deposits } & 20 \text { million } \\\text { Demand deposits } & 14 \text { million } \\\hline\end{array}$$

-(Table: Statistics for a Small Economy) Refer to the table. The table shows some statistics for a small economy. Using only the information provided, M1 in this country amounts to:

A) $69 million.
B) $57 million.
C) $43 million.
D) $50 million.

Question 26

Which is NOT a means of payment in the United States?

A) Federal Reserve notes
B) checkable deposits
C) savings deposits
D) stock options

Question 27

Which asset would you classify as being most liquid?

A) demand deposits
B) small-time deposits
C) a home
D) gold bullion

Question 28

Money is best defined as:

A) anything that has a high nominal value.
B) anything that is a widely accepted means of payment.
C) only the amount we spend in a given period.
D) the total amount of fixed assets we own.

Question 29

Which is NOT a reason so much U.S. currency circulates in other countries?

A) Several countries use the U.S. dollar as their official currency.
B) The U.S. dollar is frequently used in drug trafficking.
C) Dollars hold their value in unstable countries.
D) The Federal Reserve makes loans to other countries.

Question 30

Why are debit cards not listed as money?

A) They perform the same function as checks, and checks are counted as money.
B) Debit cards cannot be used for payments at most stores.
C) Debit cards draw on checkable deposits, which are already counted as money.
D) Not all banks issue debit cards.

Question 31

Which definition of money has the greatest value in the money pyramid?

A) the monetary base
B) M1
C) the monetary base plus M1
D) M2

Question 32

Use the following to answer questions: Table: Statistics for a Small Economy $$\begin{array} { l c } \hline \text { Item } & \text { Value in dollars (\$) } \\\hline \text { Cash held by public } & 7 \text { million } \\\text { Small-time deposits } & 30 \text { million } \\\text { Money market mutual funds } & 18 \text { million } \\\text { Checkable deposits } & 36 \text { million } \\\text { Currency \& total reserves at the Fed } & 12 \text { million } \\\text { Large-time deposits } & 20 \text { million } \\\text { Demand deposits } & 14 \text { million } \\\hline\end{array}$$

-(Table: Statistics for a Small Economy) Refer to the table. The table shows some statistics for a small economy. Using only the information provided, M2 in this country amounts to:

A) $105 million.
B) $121 million.
C) $137 million.
D) $129 million.

Question 33

In the United States, the amount of cash per capita is about $4,000. This figure:

A) shows how much currency each American holds in their checking accounts.
B) misrepresents actual currency holdings in the United States because a lot of dollars are held outside the country.
C) accurately represents the size of the underground economy in the United States.
D) shows how much the world depends on the U.S. monetary system.

Question 34

Demand deposits are:

A) small-time deposits.
B) savings deposits.
C) checkable deposits.
D) money market deposits.

Question 35

M1 refers to:

A) currency.
B) currency plus total reserves held at the Fed.
C) currency plus checkable deposits.
D) currency, checkable deposits, savings deposits, money market mutual funds, and small-time deposits.

Question 36

Which is the LEAST liquid asset?

A) currencies
B) checkable deposits
C) small-time deposits
D) savings deposits

Question 37

Use the following to answer questions: Table: Statistics for a Small Economy $$\begin{array} { l c } \hline \text { Item } & \text { Value in dollars (\$) } \\\hline \text { Cash held by public } & 7 \text { million } \\\text { Small-time deposits } & 30 \text { million } \\\text { Money market mutual funds } & 18 \text { million } \\\text { Checkable deposits } & 36 \text { million } \\\text { Currency \& total reserves at the Fed } & 12 \text { million } \\\text { Large-time deposits } & 20 \text { million } \\\text { Demand deposits } & 14 \text { million } \\\hline\end{array}$$

-(Table: Statistics for a Small Economy) Refer to the table. The table shows some statistics for a small economy. Using only the information provided, the monetary base amounts to:

A) $149 million.
B) $71 million.
C) $19 million.
D) $12 million.

Question 38

Rank the major means of payment from the largest to the smallest amount of dollars.

A) savings deposits, money market mutual funds, small-time deposits
B) money market mutual funds, small-time deposits, savings deposits
C) money market mutual funds, savings deposits, small-time deposits
D) small-time deposits, money market mutual funds, savings deposits

Question 39

Which is NOT included in the U.S. money supplies M1 and M2?

A) currency in circulation
B) checkable deposits
C) bond mutual funds
D) savings deposits

Question 40

Which is MOST liquid?

A) a mortgage loan
B) checkable deposits in a bank
C) a new truck
D) a diamond

Question 41

To be considered money, an asset must be:

A) backed by gold or other precious metals.
B) widely accepted as a means of payment.
C) currency.
D) issued by the Federal Reserve or a major commercial bank in the United States.

Question 42

Which asset is the LEAST liquid?

A) cash
B) savings deposits
C) checkable deposits
D) bank reserves

Question 43

The single largest category of means of payment in the United States is:

A) currency.
B) reserves held at the Fed.
C) checkable deposits.
D) savings deposits.

Question 44

Table: Money Supply Components $$\begin{array} { l l } \hline \text { Reserves held by banks at the Fed } & \$ 120 \text { billion } \\\text { Currency } & \$ 800 \text { billion } \\\text { Checkable deposits } & \$ 650 \text { billion } \\\text { Savings deposits } & \$ 375 \text { billion } \\\text { Small-time deposits } & \$ 957 \text { billion } \\\text { Money market mutual funds } & \$ 486 \text { billion } \\\hline\end{array}$$ Refer to the table. According to the data in the table, the total amount of M1 equals:

A) $920 billion.
B) $1,450 billion.
C) $3,268 billion.
D) $3,388 billion.

Question 45

The main difference between M1 and M2 is that:

A) M1 includes some less liquid assets in addition to the assets in M2.
B) M1 includes more liquid assets in addition to the assets in M2.
C) M2 includes some less liquid assets in addition to the assets in M1.
D) M2 includes more liquid assets in addition to the assets in M1.

Question 46

Which serves as a means of payment in the United States?

A) currency
B) checkable deposits
C) savings deposits
D) currency, checkable deposits, and savings deposits

Question 47

The Federal Reserve has direct control over:

A) the monetary base.
B) M1.
C) M2.
D) Each of these answers is correct.

Question 48

The largest means of payment in the United States is:

A) savings deposits.
B) checkable deposits.
C) cash.
D) credit cards.

Question 49

A liquid asset is:

A) an asset that can be used for payments, or can quickly and without loss of value be converted to an asset that can be used for payments.
B) an asset that cannot be used for payments, or can quickly and without loss of value be converted to an asset that can be used for payments.
C) a very narrowly accepted means of payment.
D) gold and only gold.

Question 50

The narrowest measure of the U.S. money supply is:

A) the monetary base.
B) M1.
C) M2.
D) M3.

Question 51

Reserves held at the Fed are:

A) kept in a secure vault in Washington, DC.
B) electronic claims that can be converted into currency if the bank wishes.
C) mostly held by banks in Panama, Ecuador, and El Salvador.
D) kept exclusively in the form of gold bars.

Question 52

Reserves held by banks are mainly held in the form of:

A) currency.
B) checkable deposits.
C) electronic claims.
D) savings accounts.

Question 53

The monetary base consists of currency:

A) plus checkable deposits.
B) plus checkable and savings deposits.
C) plus total reserves held at the Fed.
D) with the inclusion of coins.

Question 54

In the United States, the largest category of means of payment is:

A) currency.
B) checkable deposits.
C) savings accounts.
D) small-time deposits.

Question 55

Which is the MOST liquid asset?

A) currency
B) checkable deposits
C) savings deposits
D) money market mutual funds

Question 56

Which is included in M2?

A) currency
B) checkable deposits
C) savings deposits
D) currency, checkable deposits, and savings deposits

Question 57

Which is NOT a widely used means of payment in the United States today?

A) currency
B) savings deposits
C) gold
D) checkable deposits

Question 58

M1 is equal to currency plus:

A) checkable deposits.
B) total reserves held at the Federal Reserve.
C) savings deposits.
D) small-time deposits.

Question 59

The Fed has the most control over:

A) the monetary base.
B) M1.
C) M2.
D) money market mutual funds.

Question 60

The monetary base is equal to currency plus:

A) checkable deposits.
B) total reserves held at the Federal Reserve.
C) savings deposits.
D) small-time deposits.

Question 61

Money is:

A) anything that is widely accepted as a means of payment.
B) currency only.
C) another name for income.
D) stocks and bonds.

Question 62

If the reserve ratio is 4%, the money multiplier is:

A)4.
B)16.
C)20.
D)25.

Question 63

The Federal Reserve has direct control over:

A) the monetary base.
B) M1.
C) M2.
D) checkable deposits.

Question 64

Use the following to answer questions: Table: The Definition of the Money Supply $$\begin{array} { l c } \hline \text { Type of money } & \text { Amount (millions) } \\\hline \text { Currency and reserves held by banks at the Fed } & \$ 50 \\\text { Currency held by the public } & \$ 100 \\\text { Checkable deposits } & \$ 250 \\\text { Savings deposits } & \$ 150 \\\text { Money market mutual funds } & \$ 25 \\\text { Small time deposits } & \$ 10 \\\hline\end{array}$$

-(Table: The Definition of the Money Supply) Refer to the table. What is the M1 money supply?

A) $150 million
B) $250 million
C) $350 million
D) $400 million

Question 65

Checkable deposits are part of:

A) the monetary base.
B) M1_.
C) M2_.
D) M1 and M2.

Question 66

Withdrawing which asset will incur a penalty before a certain period has passed?

A) checkable deposits
B) savings deposits
C) small-time deposits
D) traveler's checks

Question 67

Use the following to answer questions: Table: The Definition of the Money Supply $$\begin{array} { l c } \hline \text { Type of money } & \text { Amount (millions) } \\\hline \text { Currency and reserves held by banks at the Fed } & \$ 50 \\\text { Currency held by the public } & \$ 100 \\\text { Checkable deposits } & \$ 250 \\\text { Savings deposits } & \$ 150 \\\text { Money market mutual funds } & \$ 25 \\\text { Small time deposits } & \$ 10 \\\hline\end{array}$$

-(Table: The Definition of the Money Supply) Refer to the table. What is the M2 money supply?

A) $400 million
B) $550 million
C) $535 million
D) $585 million

Question 68

Which is the LEAST liquid means of payment?

A) small-time deposits
B) money market mutual funds
C) savings deposits
D) checkable deposits

Question 69

A money market mutual fund invests in:

A) short-term debt and government securities.
B) long-term debt and government securities.
C) stocks.
D) real estate.

Question 70

An asset that without loss of value can be quickly converted into money:

A) is a liquid asset.
B) is nonexistent.
C) is housing.
D) must rise in value over time.

Question 71

Over which of the following definitions of the money supply does the Fed have the most control?

A) M1
B) M2
C) the monetary base
D) savings deposits

Question 72

Which does NOT serve as means of payment in the United States?

A) paper bills and coins
B) mutual funds
C) checking or debit account
D) savings deposits

Question 73

Which asset is MOST liquid?

A) a money market mutual fund
B) cash
C) a house
D) antique furniture

Question 74

Which asset is the LEAST liquid?

A) a bar of gold
B) a $100 bill
C) a pile of dog fur
D) a current-edition used textbook

Question 75

Which is NOT a means of payment?

A) currency
B) checkable deposits
C) savings deposits
D) a credit card account limit

Question 76

Which money supply component is the smallest?

A) monetary base
B) M1
C) M2
D) currency

Question 77

Which concept describes the ease with which an asset can be quickly converted into money without losing its value?

A) solvency
B) opportunity cost
C) liquidity
D) moral hazard

Question 78

Which statement is correct?

A) M1 is always larger than M2.
B) M2 is always larger than M1.
C) M1 is larger than M2 during recessions, while M2 is larger than M1 during expansions.
D) M2 is larger than M1 during recessions, while M1 is larger than M2 during expansions.

Question 79

Which definition of the money supply includes the most assets?

A) currency
B) M1
C) M2
D) the monetary base

Question 80

Which asset is the LEAST liquid?

A) a mortgage on a house
B) recyclable aluminum cans
C) knowledge of how to tie one's shoe
D) a checkable deposit