Deck 2: The Federal Reserve and Its Powers

Question 1

The Discount Rate provides the Fed with direct control on the money supply.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

Monetary policy is a highly partisan issue.

Question 5

Federal Reserve regulations affect many nonbank institutions.

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

The Fed's most commonly used tool is reserve requirements.

Question 12

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

Question 13

A decrease in Federal Reserve float decreases member bank reserves.

Question 14

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

Question 15

The Federal Reserve System replaced the National Banking system.

Question 16

Deposits should expand when reserve requirements increase.

Question 17

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

Question 18

The Federal Reserve is this nation's first permanent central bank.

Question 19

Deposits should expand when the Fed sells securities.

Question 20

Currency is an asset of the Federal Reserve Banks.

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

There are 12 Federal Reserve District banks today.

Question 26

The current chair of the Federal Reserve is Ben Bernanke.

Question 27

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

Question 28

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

Question 29

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

Question 30

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 31

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

Question 32

All national banks must join the Federal Reserve System.

Question 33

The Federal Reserve was created in 1933 as a result of the Great Depression.

Question 34

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

Question 35

Congress has no oversight of the Fed.

Question 36

The most important new power granted to the Fed by the Dodd-Frank Act was to expand its power to manage systemic risk.

Question 37

Quantitative easing consists of the Fed buying bonds even when interest rates are low.

Question 38

Excess reserves cost a depository institution nothing to maintain.

Question 39

The TARP program allowed the government to purchase troubled loans from banks during and after the financial crisis.

Question 40

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

Question 41

What are margin requirements, and why do they exist?

Question 42

Why is changing the discount rate not a viable tool for conducting monetary policy?

Question 43

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

Question 44

What is the relationship between central bank independence and inflation?

Question 45

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 46

How has the Fed's balance sheet changed since 2008? Why have these changes occurred and what are their implications?

Question 47

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

Question 48

What are the bodies of the Federal Reserve System?