Question 1

The conduct of monetary policy is handled by the:&#10;A) Board of Governors&#10;B) Forecasting Division&#10;C) Fed District Bank Presidents&#10;D) Federal Open Market Committee

Accepted Answer

The Federal Open Market Committee (FOMC) is responsible for setting monetary policy, including interest rates and open market operations.

Question 2

The Treasury Department:&#10;A) Collects revenues and pays bills for the government&#10;B) Sets national interest rates&#10;C) Determines income tax rates&#10;D) Passes legislation on national spending

Accepted Answer

The Treasury Department is responsible for managing the government's money, which includes collecting taxes and other revenues, and paying the government's bills. It does not set national interest rates (that's the Federal Reserve's role), determine income tax rates (set by Congress), or pass legislation on national spending (also Congress's responsibility).

Question 3

Which of the following is the primary concern of a mint that is producing coins:&#10;A) The shape of the coins&#10;B) The antimicrobial properties of the coins&#10;C) The counterfeitability of the coins&#10;D) The color of the coins

Accepted Answer

The primary concern of a mint producing coins is the counterfeitability of the coins. This is because preventing counterfeit coins is crucial for maintaining the integrity and trust in a currency system. The design, material, and special features of coins are often tailored to make them difficult to counterfeit.

Question 4

Profits generated from the sale of new notes and coins to the banking system is called:&#10;A) Quantitative Easing&#10;B) Forward Guidance&#10;C) Seignorage&#10;D) Open Market Operations

Accepted Answer

Seignorage is the profit made by a government by issuing currency, especially the difference between the face value of coins and notes and their production costs.

Question 5

Present value is:&#10;A) The value today of future dollars&#10;B) The future value of dollars received today&#10;C) Impossible to calculate if the fixed payments, term, and interest rates are known&#10;D) Denominated in percentage terms

Accepted Answer

Present value refers to the current worth of a future sum of money or stream of cash flows given a specified rate of return. It contrasts with future value, which is the value of an investment at a future point in time. Present value calculations are fundamental in finance for discounting future amounts to understand their worth today, assuming fixed payments, term, and interest rates are known. It is not denominated in percentage terms but in currency value.

Question 6

Bond prices are ___ related to interest rates:&#10;A) Positively&#10;B) Negatively&#10;C) Not&#10;D) Rarely

Accepted Answer

Bond prices and interest rates have an inverse relationship. When interest rates rise, bond prices fall, and when interest rates fall, bond prices rise. This is because the fixed payments from bonds become more or less attractive compared to the new rates available in the market.

Question 7

A large purchase of US Treasuries by the Federal Reserve, with no new bonds being issued will:&#10;A) Lower the price of these securities&#10;B) Have no affect on security prices&#10;C) Raise the price of these securities&#10;D) Cause a banking crisis

Accepted Answer

When the Federal Reserve purchases a large amount of US Treasuries, it increases demand for those securities, which typically raises their prices.

Question 8

The US government cannot go bankrupt because:&#10;A) It is the largest economy in the world&#10;B) Countries trust in the dollar as a currency&#10;C) US government spending is unconstrained&#10;D) The democratic system is efficient

Accepted Answer

The answer of The US government cannot go bankrupt because:&#10;A)...

Deck 3: Relationship of the Federal Reserve Bank and the US Treasury Department