Deck 15: The Federal Reserve System

Question 1

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 1

approve the transactions involving corporate bonds and stocks.

Question 2

The world's largest bank customer is:

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

Answer 2

the U.S.Treasury.

Question 3

The Federal Reserve:

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

Answer 3

conducts monetary policy.

Question 4

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 5

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 6

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 7

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 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

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 10

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 11

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.

Question 12

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

Question 13

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 14

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 15

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 16

The Federal Reserve:

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

Question 17

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 18

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 19

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 20

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 21

Which is MOST liquid?

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

Question 22

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 23

Table: Money Supply Components Reserves held by banks at the Fed
$120 billion
Currency
$800 billion
Checkable deposits
$650 billion
Savings deposits
$375 billion
Small-time deposits
$957 billion
Money market mutual funds
$486 billion
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 24

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 25

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 26

Which asset would you classify as being most liquid?

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

Question 27

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 28

Which is the LEAST liquid asset?

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

Question 29

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 30

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 31

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 32

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 33

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 34

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 35

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 36

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 37

Demand deposits are:

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

Question 38

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

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

Question 39

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 40

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 41

Which asset is the LEAST liquid?

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

Question 42

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

Question 43

Which is the MOST liquid asset?

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

Question 44

The Federal Reserve has direct control over:

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

Question 45

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 46

The Fed has the most control over:

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

Question 47

Which definition of the money supply includes the most assets?

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

Question 48

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 49

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 50

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 51

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 52

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 53

The largest means of payment in the United States is:

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

Question 54

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 55

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

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

Question 56

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 57

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 58

Which is included in M2?

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

Question 59

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 60

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 61

Which is the LEAST liquid means of payment?

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

Question 62

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 63

Because the United States has a fractional reserve banking system,banks hold:

A) less than 100% of deposits as reserves.
B) more than 100% of deposits as reserves.
C) 100% of deposits as reserves.
D) no currency in their vaults.

Question 64

Checkable deposits are part of:

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

Question 65

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 66

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 67

Which asset is MOST liquid?

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

Question 68

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 69

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 70

An increase in the reserve ratio will _____ banks' ability to make loans.

A) increase
B) decrease
C) not change
D) make it more difficult to predict

Question 71

$\frac { 1 } { \text { Reserve Ratio } }$ is the:

A) fractional reserve multiplier.
B) monetary base multiplier.
C) money multiplier.
D) loan multiplier.

Question 72

The effective reserve ratio is determined primarily by:

A) how liquid banks wish to be.
B) how greedy banks wish to be.
C) the number of bank customers.
D) the size of banks' vaults.

Question 73

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 74

Which is NOT a means of payment?

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

Question 75

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 76

The reserve ratio is the ratio of reserves to:

A) loans.
B) vault cash.
C) net worth.
D) deposits.

Question 77

The Federal Reserve has direct control over:

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

Question 78

Under fractional reserve banking,banks hold:

A) all deposits in reserve for the purpose of lending.
B) all deposits in reserve,using other sources of funds for lending.
C) no deposits in reserve,lending all deposits.
D) only a fraction of deposits in reserve,lending the rest.

Question 79

Which money supply component is the smallest?

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

Question 80

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