Question 1

Although not provided for in the original organization of the Fed, open-market operations have become the most important and effective means of monetary control.

Accepted Answer

Open-market operations refer to the purchase or sale of government securities by the Fed to influence the money supply and interest rates, and it has become the most important and effective tool of monetary policy of the Fed over time.

Question 2

The Federal Reserve System (Fed), the central bank of the United States, is responsible for setting monetary policy and regulating the banking system.
Answer T

Accepted Answer

The statement is true. The Federal Reserve System (Fed) is responsible for setting monetary policy and regulating the banking system in the United States.

Question 3

Although a central bank does not necessarily operate for profit, it generally deals directly with the public.

Accepted Answer

Central banks typically do not deal directly with the public but rather with commercial banks and other financial institutions. They manage the country's currency, money supply, and interest rates, and their primary interactions are with the banking sector, not individual consumers.

Question 4

A major weakness of the banking system under the National Banking Acts was that the money supply could not be easily expanded or contracted to meet changing seasonal needs and/or changes in economic activity.

Accepted Answer

The National Banking Acts required banks to hold a certain amount of government bonds in order to issue currency, which limited their ability to expand or contract the money supply based on economic needs.

Question 5

The seven members of the Federal Reserve Board of Governors are responsible for the establishment of monetary policy.

Accepted Answer

The seven members of the Federal Reserve Board of Governors are responsible for the establishment of monetary policy.

Question 6

State-chartered banks were permitted to join the system if they could show evidence of a satisfactory financial condition

Accepted Answer

State-chartered banks had to demonstrate their financial stability to become a part of the Federal Reserve System.

Question 7

The 1980 Depository Institutions Deregulation and Monetary Control Act applies different reserve requirements to different banks based on their charters.

Accepted Answer

The 1980 Depository Institutions Deregulation and Monetary Control Act standardized reserve requirements for all depository institutions, regardless of their charter type, to create a level playing field.

Question 8

The essential requirements of a well-functioning financial system include an efficient national payments system, a flexible money supply, and a lending/borrowing mechanism to help alleviate liquidity problems when they arise.

Accepted Answer

These are indeed the essential requirements of a well-functioning financial system.

Question 9

The Government National Mortgage Association (Ginnie Mae) was created in 1968 as a public-private corporation.

Accepted Answer

Ginnie Mae was created in 1968 as a wholly owned government corporation, not a public-private corporation.

Question 10

Because of the National Banking Act, the volume of national bank notes depends on the government bond market rather than the seasonal or cyclical needs of the nation for currency.

Accepted Answer

The National Banking Act tied the issuance of national bank notes to the amount of government bonds held by the bank, rather than the bank's fiduciary needs. This set the volume of national bank notes based on the government bond market rather than the seasonal or cyclical needs of the nation for currency.

Question 11

The United States was one of the earliest major-industrial nations to adopt a permanent system of central banking.

Accepted Answer

The United States was relatively late among major industrial nations to establish a permanent central banking system, with the Federal Reserve System being created in 1913.

Question 12

The Fed Board of Governors is composed of seven members who are appointed for a term of 12 years.

Accepted Answer

The Fed Board of Governors is composed of seven members who are appointed for a term of 14 years.

Question 13

About one-third of the nation's commercial banks are members of the Fed.

Accepted Answer

According to the Federal Reserve System's website, as of 2021, there are approximately 4,400 commercial banks in the United States, and more than 2,000 of them are members of the Federal Reserve System, which is about one-third of the total number.

Question 14

The United States was one of the last major industrial nations to adopt a permanent system of central banking.

Accepted Answer

The Federal Reserve System, the central banking system of the United States, was established in 1913, long after other major industrial nations had established their own central banks.

Question 15

The Federal Reserve act required that all national banks were to become members of the Fed.

Accepted Answer

The Federal Reserve Act of 1913 required that all national banks become members of the Federal Reserve System.

Question 16

A central bank is a Federal government agency that facilitates operation of the financial system and regulates growth of the money supply.

Accepted Answer

A central bank is responsible for facilitating the operation of the financial system and ensuring the stability of the nation's currency and money supply. It is typically established as a federal government agency and operates independently of political influence.

Question 17

Open market operations involve the buying and selling of U.S. government securities.

Accepted Answer

Open market operations are a monetary policy tool used by the Federal Reserve to influence the money supply in the economy. They involve the buying and selling of U.S. government securities, such as Treasury bonds, on the open market. When the Fed buys securities, it effectively injects cash into the economy, increasing the money supply. When it sells securities, it removes cash from the economy, decreasing the money supply.

Question 18

All commercial banks are members of the Fed.

Accepted Answer

Not all commercial banks are members of the Federal Reserve System. Membership is required for national banks, but state-chartered banks have the option to join or not.

Question 19

The federal government has historically played a very passive role in encouraging home ownership by supporting liquid markets for home mortgages.

Accepted Answer

Historically, the federal government has played an active role in encouraging home ownership, notably through the creation of agencies like the Federal Housing Administration (FHA) and the Veterans Administration (VA), which insure mortgages, and entities like Fannie Mae and Freddie Mac, which support the liquidity of the mortgage market.

Question 20

Fannie Mae was created to support the financial markets by purchasing home mortgages and automobile loans from banks so that the proceeds could be lent to other borrowers.

Accepted Answer

Fannie Mae was created to support the mortgage market by purchasing home mortgages from banks, not automobile loans, allowing banks to lend to more homebuyers.

Quiz 4: Federal Reserve System

Although not provided for in the original organization of the Fed, open-market operations have become the most important and effective means of monetary control.

The Federal Reserve System (Fed), the central bank of the United States, is responsible for setting monetary policy and regulating the banking system. Answer T

Although a central bank does not necessarily operate for profit, it generally deals directly with the public.

A major weakness of the banking system under the National Banking Acts was that the money supply could not be easily expanded or contracted to meet changing seasonal needs and/or changes in economic activity.

The seven members of the Federal Reserve Board of Governors are responsible for the establishment of monetary policy.

State-chartered banks were permitted to join the system if they could show evidence of a satisfactory financial condition

The 1980 Depository Institutions Deregulation and Monetary Control Act applies different reserve requirements to different banks based on their charters.

The essential requirements of a well-functioning financial system include an efficient national payments system, a flexible money supply, and a lending/borrowing mechanism to help alleviate liquidity problems when they arise.

The Government National Mortgage Association (Ginnie Mae) was created in 1968 as a public-private corporation.

Because of the National Banking Act, the volume of national bank notes depends on the government bond market rather than the seasonal or cyclical needs of the nation for currency.

The United States was one of the earliest major-industrial nations to adopt a permanent system of central banking.

The Fed Board of Governors is composed of seven members who are appointed for a term of 12 years.

About one-third of the nation's commercial banks are members of the Fed.

The United States was one of the last major industrial nations to adopt a permanent system of central banking.

The Federal Reserve act required that all national banks were to become members of the Fed.

A central bank is a Federal government agency that facilitates operation of the financial system and regulates growth of the money supply.

Open market operations involve the buying and selling of U.S. government securities.

All commercial banks are members of the Fed.

The federal government has historically played a very passive role in encouraging home ownership by supporting liquid markets for home mortgages.

Fannie Mae was created to support the financial markets by purchasing home mortgages and automobile loans from banks so that the proceeds could be lent to other borrowers.