Question 1

The most important responsibility of the Fed is to

Accepted Answer

The most important responsibility of the Fed is to control the money supply. This is achieved through various monetary policy tools such as setting interest rates, buying or selling government securities, and adjusting reserve requirements. The Fed's ability to control the money supply has a significant impact on the economy, including inflation, employment levels, and economic growth. While the other responsibilities listed are important roles of the Fed, they are not considered its primary responsibility.

Question 2

Here is how an open market purchase works: The Fed __________ government securities to (from) a commercial bank, which raises the bank's deposits at the __________ and increases the bank's __________.

Accepted Answer

An open market purchase is when the Fed buys government securities from a commercial bank, which increases the bank's deposits at the Fed and also increases the bank's reserves. This is done to increase the money supply and stimulate economic activity.

Question 3

The president of the ________________________ holds a permanent seat on the FOMC.

Accepted Answer

The president of the Federal Reserve District Bank of New York holds a permanent seat on the Federal Open Market Committee (FOMC), which is responsible for setting the nation's monetary policy.

Question 4

The __________ rate is the interest rate one bank pays another bank for a loan.

Accepted Answer

The federal funds rate is the interest rate at which banks and credit unions lend reserve balances to other depository institutions overnight on an uncollateralized basis. This helps banks meet their reserve requirements and maintain liquidity. The other options (discount, mortgage, reserve requirement, and bank-borrowing rates) do not refer to interbank lending rates.

Question 5

Which of the following will cause the money supply to decline?

Accepted Answer

Raising the required reserve ratio (B) means banks must hold more funds in reserve and thus can lend out less, reducing the money supply. An open market sale (D) involves the central bank selling securities, which decreases bank reserves and the money supply as banks use their reserves to buy these securities.

Question 6

Which of the following is not a function of the Fed?

Accepted Answer

The Federal Reserve (Fed) does not serve as the borrower of last resort; it serves as the lender of last resort. This means it provides banks with liquidity in times of financial crisis to prevent the banking system from collapsing.

Question 7

If reserves increase by $8 billion, what is the difference in the resulting change in checkable deposits when the required reserve ratio is 12.5 percent compared to when it is 10 percent?

Accepted Answer

When the required reserve ratio is 12.5 percent, the change in checkable deposits will be:
$8 billion / (0.125) = $64 billion
When the required reserve ratio is 10 percent, the change in checkable deposits will be:
$8 billion / (0.10) = $80 billion
The difference in the resulting change in checkable deposits is:
$80 billion - $64 billion = $16 billion.

Question 8

One of the Fed's functions is to be the government's banker. This function means that the

Accepted Answer

The Fed acts as the government's banker, which includes holding the government's checking account, facilitating its transactions such as the issuance of checks and the receipt of funds.

Question 9

A Federal Reserve Bank is located in which of the following cities?

Accepted Answer

The Federal Reserve Bank of Minneapolis is located in Minneapolis, Minnesota. Detroit, Baltimore, Seattle, and Cincinnati each have Federal Reserve branches, but not the main bank.

Question 10

The Federal Reserve System came into existence with the Federal Reserve Act of

Accepted Answer

The Federal Reserve System was created on December 23, 1913, with the signing of the Federal Reserve Act by President Woodrow Wilson.

Question 11

There are __________ Federal Reserve Districts.

Accepted Answer

There are twelve Federal Reserve Districts, each with its own Federal Reserve Bank.

Question 12

Which of the following is not a function of the Federal Reserve System?

Accepted Answer

While the Federal Reserve System is involved in many aspects of U.S. monetary policy and banking regulation, serving as the government's tax collector is not one of its functions. The Internal Revenue Service (IRS) is the agency responsible for collecting federal taxes in the United States.

Question 13

If there are no excess reserves in the banking system and the Fed lowers the required reserve ratio, it follows that banks will now have __________, which they can use to extend loans and create new __________.

Accepted Answer

If there are no excess reserves and the Fed lowers the required reserve ratio, banks will have positive excess reserves, which they can use to extend loans and create new checkable deposits. Excess reserves are the reserves held by banks in excess of the required reserve ratio, and lowering the required reserve ratio means that banks have to hold fewer reserves, leaving them with more excess reserves to lend out. The creation of new checkable deposits occurs when banks lend out these excess reserves, thereby increasing the money supply.

Question 14

Here is how an open market sale works: A commercial bank __________ government securities to (from) the Fed, which lowers the bank's deposits at the __________ and __________ the bank's __________.

Accepted Answer

The answer of Here is how an open market sale...

Question 15

The major policy-making group within the Fed is the __________ Committee.

Accepted Answer

The Federal Open Market Committee (FOMC) is the main policy-making group within the Federal Reserve System. It is responsible for overseeing open market operations, setting monetary policy, and adjusting interest rates to maintain price stability and promote economic growth. The FOMC meets eight times a year to discuss current economic conditions and determine the appropriate course of action.

Question 16

Every time the Fed buys or sells on the open market, the __________ changes.

Accepted Answer

The Fed's open market operations involve buying or selling government securities, which can increase or decrease the amount of money in circulation in the economy, therefore affecting the money supply. The budget deficit and income tax rate are not directly impacted by the Fed's open market operations.

Question 17

Paper money is printed at the _______________________, but it is issued to commercial banks by the ______________________________.

Accepted Answer

Paper money is printed at the Bureau of Engraving and Printing, but it is issued to commercial banks by the 12 Federal Reserve District Banks.

Question 18

An open market __________ by the Fed increases the money supply; a(n) __________ in the required reserve ratio increases the money supply.

Accepted Answer

An open market purchase by the Fed injects money into the banking system, increasing the money supply. Decreasing the required reserve ratio allows banks to lend more of their deposits, also increasing the money supply.

Question 19

A decrease in the required reserve ratio __________ the money supply; an open market purchase __________ the money supply.

Accepted Answer

A decrease in the required reserve ratio allows banks to lend more, thus increasing the money supply. An open market purchase injects money into the banking system, also increasing the money supply.

Question 20

Each of the governors of the Federal Reserve System is appointed for a term of __________ years. The Board of Governors is comprised of _____________ members and the FOMC is comprised of __________ members.

Accepted Answer

Each governor of the Federal Reserve System is appointed for a term of 14 years. The Board of Governors is comprised of 7 members and the FOMC is comprised of 12 members.

Quiz 13: The Federal Reserve System

The most important responsibility of the Fed is to

Here is how an open market purchase works: The Fed government securities to (from) a commercial bank, which raises the bank's deposits at the and increases the bank's __.

The president of the ________________________ holds a permanent seat on the FOMC.

The __________ rate is the interest rate one bank pays another bank for a loan.

Which of the following will cause the money supply to decline?

Which of the following is not a function of the Fed?

If reserves increase by $8 billion, what is the difference in the resulting change in checkable deposits when the required reserve ratio is 12.5 percent compared to when it is 10 percent?

One of the Fed's functions is to be the government's banker. This function means that the

A Federal Reserve Bank is located in which of the following cities?

The Federal Reserve System came into existence with the Federal Reserve Act of

There are __________ Federal Reserve Districts.

Which of the following is not a function of the Federal Reserve System?

If there are no excess reserves in the banking system and the Fed lowers the required reserve ratio, it follows that banks will now have , which they can use to extend loans and create new .

Here is how an open market sale works: A commercial bank government securities to (from) the Fed, which lowers the bank's deposits at the and the bank's .

The major policy-making group within the Fed is the __________ Committee.

Every time the Fed buys or sells on the open market, the __________ changes.

Paper money is printed at the _, but it is issued to commercial banks by the ________.

An open market by the Fed increases the money supply; a(n) in the required reserve ratio increases the money supply.

A decrease in the required reserve ratio the money supply; an open market purchase the money supply.

Each of the governors of the Federal Reserve System is appointed for a term of ____ years. The Board of Governors is comprised of _ members and the FOMC is comprised of ____ members.