Question 1

Which statement is true?

Accepted Answer

During periods of severe inflation, the Fed tries to push up interest rates to reduce borrowing and spending, which in turn reduces the money supply and slows down inflation. Open market operations and reserve requirements are also tools used by the Fed to control the money supply. The discount rate is the rate at which banks can borrow money from the Fed, and changes in this rate can affect borrowing and lending behavior, but it is not the primary tool used to control the money supply.

Question 2

Bank panics were the result of

Accepted Answer

Bank panics occurred when a large number of depositors attempted to withdraw their funds at the same time, leading to the depletion of the bank's reserves. If the bank did not have enough reserves to meet the demand for withdrawals, it would have to close, leading to a run on other banks in the area.

Question 3

Which of the following will increase commercial bank reserves?

Accepted Answer

When the Federal Reserve Banks purchase government bonds in the open market, they pay for them with electronic credits to the sellers' bank accounts. These credits increase the sellers' deposits held at their banks, thereby increasing the banks' reserves.

Question 4

The Federal Reserve System controls the money supply primarily through

Accepted Answer

The Federal Reserve System primarily controls the money supply through open market operations, which involve buying or selling government securities. Through this process, the Federal Reserve can increase or decrease the amount of money in circulation. While reserve requirement changes and adjusting the discount rate can also impact the money supply, they are not the primary tools used by the Federal Reserve. Accounting operations and jawboning are not direct methods of controlling the money supply.

Question 5

The most powerful (but seldom used)tool at the Federal Reserve's disposal is

Accepted Answer

While all of the options listed are tools that the Federal Reserve can use to influence the economy, the ability to set reserve requirements is the most powerful and least used. Reserve requirements refer to the amount of money that banks are required to keep on hand in relation to their deposits. By increasing or decreasing reserve requirements, the Federal Reserve can directly affect the amount of money that banks have available to lend and the overall money supply in the economy. However, the Federal Reserve rarely changes reserve requirements because doing so can have a significant impact on the banking system and the economy as a whole.

Question 6

Statement I: Trillions of dollars are transferred electronically every day in the United States.
Statement II: In terms of dollars transferred,the main electronic network is run by the Federal Reserve.

Accepted Answer

The answer of Statement I: Trillions of dollars are transferred...

Question 7

Which statement is true?

Accepted Answer

The power of the Federal Reserve is centered largely in its Board of Governors, which is responsible for formulating and implementing monetary policy. The other choices are not entirely accurate. While the Federal Reserve has acted as a lender of last resort in times of financial crisis, its record in this regard is not without controversy. The issue of Federal Reserve independence is subject to ongoing debate among economists, policymakers, and the general public. Finally, the Federal Reserve System is not operated for the benefit of private stockholders; rather, any profits earned by the Fed are returned to the Treasury or used to finance its own operations.

Question 8

A contractionary monetary policy tends to ____ the United States dollar relative to foreign currencies,and to _____ our balance of trade.

Accepted Answer

A contractionary monetary policy typically involves increasing interest rates, which tends to attract foreign capital due to higher returns, thus raising the value of the domestic currency. However, a stronger currency can make exports more expensive and imports cheaper, potentially worsening the balance of trade.

Question 9

The discount rate refers to

Accepted Answer

The discount rate refers specifically to the interest rate at which banks can borrow from the central bank, the Federal Reserve in the case of the US. This is typically used by banks as a last resort when they are unable to borrow from other sources. The discount rate is a tool used by the central bank to control the money supply and influence interest rates in the economy. Therefore, option E is the correct definition of the discount rate.

Question 10

Statement I: When the Federal Reserve Bank issues currency,this increases our money supply.
Statement II: Most of our currency is printed by the United States Treasury.

Accepted Answer

The answer of Statement I: When the Federal Reserve Bank...

Question 11

The deposit expansion multiplier is

Accepted Answer

The deposit expansion multiplier is the amount by which the money supply is increased by a given increase in reserves. It is calculated as the reciprocal of the reserve ratio, which is the fraction of deposits that banks are required to hold as reserves. Therefore, the correct answer is C.

Question 12

Which statement is true?

Accepted Answer

The statement that is true is that "The banks have received interest on their reserves since October,2008." This is because in October 2008, the Federal Reserve began paying interest on reserve balances held at the Fed to encourage banks to keep excess reserves with them instead of lending the money out. This policy also helps the Fed control the federal funds rate.

Question 13

Monetary policy consists of

Accepted Answer

Monetary policy refers to the actions taken by the central bank, which is the Federal Reserve System in the United States, to control the nation's money supply. The legislative and executive branches of government do not have a direct role in monetary policy.

Question 14

Which of the following was a result of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA)?

Accepted Answer

DIDMCA resulted in all checkable deposits, regardless of institution (commercial banks, savings banks, savings and loan associations, or credit unions) having the same reserve requirements.

Question 15

The purpose of establishing the Federal Reserve System was

Accepted Answer

The establishment of the Federal Reserve System had multiple purposes, including regulating commercial banking, providing for a more elastic currency, and increasing confidence in the nation's banks. Therefore, choice D is the correct answer.

Question 16

If the Fed sells securities on the open market,this will

Accepted Answer

When the Fed sells securities on the open market, it is effectively removing money from the banking system. This decreases the amount of reserves banks have available to lend, which reduces their excess reserves.

Question 17

Statement I: Time deposits that have an original maturity of less than 18 months have a legal reserve requirement of 3%.
Statement II: The Board of Governors may not raise the reserve requirement on demand deposits above 18%.

Accepted Answer

The answer of Statement I: Time deposits that have an...

Question 18

Statement I: An expansionary monetary policy tends to raise our net exports.
Statement II: Higher interest rates in the United States tend to raise the United States dollar relative to foreign currencies.

Accepted Answer

The answer of Statement I: An expansionary monetary policy tends...

Question 19

When the Fed issues currency

Accepted Answer

The answer of When the Fed issues currency
...

Question 20

The Depository Institutions Deregulation Monetary Control Act of 1980

Accepted Answer

The Depository Institutions Deregulation Monetary Control Act of 1980 required thrift institutions to be subject to the same limitations upon the creation of checkable deposits as commercial banks. This effectively eliminated the advantage that thrift institutions had over banks in terms of offering high-interest savings accounts with the ability to write checks against them. However, the Act did not prohibit thrift institutions from offering checkable deposits altogether, as stated in option C. Option A is incorrect as the Act did not enhance the distinction between banks which are members of the Federal Reserve System and those which are not. Option D is also incorrect as the Act actually increased competition between commercial banks and thrift institutions.

Quiz 14: The Federal Reserve and Monetary Policy

Which statement is true?

Bank panics were the result of

Which of the following will increase commercial bank reserves?

The Federal Reserve System controls the money supply primarily through

The most powerful (but seldom used) tool at the Federal Reserve's disposal is

Statement I: Trillions of dollars are transferred electronically every day in the United States. Statement II: In terms of dollars transferred,the main electronic network is run by the Federal Reserve.

Which statement is true?

A contractionary monetary policy tends to the United States dollar relative to foreign currencies,and to _ our balance of trade.

The discount rate refers to

Statement I: When the Federal Reserve Bank issues currency,this increases our money supply. Statement II: Most of our currency is printed by the United States Treasury.

The deposit expansion multiplier is

Which statement is true?

Monetary policy consists of

Which of the following was a result of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) ?

The purpose of establishing the Federal Reserve System was

If the Fed sells securities on the open market,this will

Statement I: Time deposits that have an original maturity of less than 18 months have a legal reserve requirement of 3%. Statement II: The Board of Governors may not raise the reserve requirement on demand deposits above 18%.

Statement I: An expansionary monetary policy tends to raise our net exports. Statement II: Higher interest rates in the United States tend to raise the United States dollar relative to foreign currencies.

When the Fed issues currency

The Depository Institutions Deregulation Monetary Control Act of 1980