Deck 12: Roles and Services of the Federal Reserve and Other Central Banks Around the World

Question 1

The text identifies three principal channels of central bank policy which describe how a central bank can influence the economy.

Answer 1

False

Question 2

An early goal of the Federal Reserve System was to make the U.S. money supply inelastic to changes in production and income so that it would not go through swings in magnitude.

Answer 2

False

Question 3

The central banks of Germany and Switzerland operate under greater freedom from government control than in most other nations.

Answer 3

True

Question 4

According to your text, the functions of central banks usually include:

A) Control of the money supply
B) Stabilization of the money and capital markets
C) Serving as a lender of last resort
D) Maintaining and improving a nation's payment mechanism
E) A, B and C only are normal or usual central bank functions
F) A, B and D are all normal or usual central bank functions

Question 5

In Japan the agency that controls bank reserve requirements is the:

A) Bank of Japan
B) Ministry of Finance
C) Central Policy Commission
D) Bank of Tokyo
E) None of the above

Question 6

In 2006 the Federal Reserve banks collectively held securities worth over

A) $500B
B) $800B
C) $1,100B
D) $1.5T
E) None of the above

Question 7

If the Federal Reserve requires a reserve requirement, RR, equal to 10% and the bank has found an excess of $1,000,000 in reserves, then the bank could absorb an additional deposits and loans equal to

A) $100,000
B) $1,000,000
C) $10,000,000
D) $100,000,000
E) None of the above

Question 8

What functions do central banks perform in a market-oriented economy? Explain why each function you have listed is important in the functioning of a market-oriented economic system.

Question 9

What are the principal goals that central banks pursue as they work to carry out monetary policy?

Question 10

To what extent are the principal goals of central bank monetary policy consistent or inconsistent with each other? What does a central bank do when the goals it wishes to pursue directly conflict with each other?

Question 11

What are the principal channels through which central banks, including the Federal Reserve System, work to influence the economy and achieve their goals?

Question 12

What major problems in the late nineteenth and early 20th century led to the creation of the Federal Reserve System? How did the creation of the Fed help to solve these problems?

Question 13

In what important ways did the early Federal Reserve System differ from the Federal Reserve we see today?

Question 14

What are the principal responsibilities assigned to the Board of Governors of the Federal Reserve System? To the Federal Open Market Committee?

Question 15

What are the Federal Reserve Banks expected to do in serving the public and the banking system?

Question 16

What duties are assigned to the manager of the System Open Market Account within the Federal Reserve System?

Question 17

List the principal functions of the Federal Reserve System today and explain why each of these functions is important.

Question 18

What is the Federal Reserve's primary job (that is, its principal role or function)?

Question 19

When we use the term ECB what is meant?

Question 20

How is the ECB similar to the Federal Reserve and in what ways is it different from the Fed?

Question 21

Explain why the ECB is likely to be one of the world's most important central banks.

Question 22

What is/are the principal target(s) of monetary policy?

Question 23

What are legal reserves? Required reserves? Excess reserves? Why are these concepts important?

Question 24

Why are deposit-type intermediaries able to create money? What factors increase the amount of deposits the banking system can create with any given injection of new reserves?

Question 25

What factors reduce the money-creating abilities of the banking system?

Question 26

Why should a central bank like the Federal Reserve worry about money and credit growth?

Question 27

Which roles of central banks are described below?

Question 28

Suppose the public wishes to hold $0.40 in pocket money and $0.25 in time deposits. Depository institutions plan to keep $0.15 in excess reserves for each dollar of transaction money received.

Question 29

A bank holds $130 million in the form of transaction and time and savings deposits. Its reserve deposit at the Federal Reserve bank during the current reserve maintenance period contains a daily average balance of $4 million and its vault cash holdings have averaged daily $0.40 million for several weeks running.
Calculate its required reserves and excess reserves if deposits are subject to a 5 percent legal reserve
requirement. Now suppose the bank elects to buy $1 million in Treasury bills from the Fed. Do you see
any problem with this?

Question 30

Suppose the central bank injected $15 million in new reserves into the banking system and the current legal reserve requirement on deposits held by the banking system is 8 percent. Moreover, the banking system is perfectly efficient and there are no leakages of funds from that system except for the current legal reserve requirement. Please set up an EXCEL spreadsheet that shows how much in total required reserves and new deposits can be created in this banking system as a result of the injection of the $15 million in new legal reserves.