Deck 14: The Federal Reserve and Monetary Policy

Question 1

Fiscal and monetary policy are conducted by _____ people to attain ______ goals.

A)the same;the same
B)different;different
C)the same;different
D)different;the same

Answer 1

D

Question 2

If you wrote a check for $37.55 to pay your phone bill and sent it to Verizon,

A)your bank's deposits will go down by $37.55 and its reserves would go up by $37.55.
B)your bank's deposits would go up by $37.55 and its reserves would go down by $37.55.
C)your bank's deposits would go down by $37.55 and its reserves would go down by $37.55.
D)your bank's deposits would go up by $37.55 and its reserves would go up by $37.55.

Answer 2

C

Question 3

The Board of Governors of the Federal Reserve does each of the following,except

A)sit on the Federal Open Market Committee.
B)serve on the Board at the pleasure of the President,who can make individual governors resign at any time.
C)carry out monetary policy.
D)raise and lower reserve requirements.

Answer 3

B

Question 4

Which statement is true?

A)The Federal Reserve buys nearly all its United States government securities directly from the Treasury.
B)Open market operations are the buying and selling of United States government securities in the open market by the Federal Reserve.
C)The least important policy tool used by the Federal Reserve to control the money supply is open market operations.
D)None of the choices/statements are true.

Question 5

Prior to October 2008,commercial banks tended to hold relatively small amounts of excess reserves because

A)the presence of such reserves tends to boost interest rates and reduce investment.
B)the Fed constantly uses open market operations to eliminate excess reserves.
C)the Fed did not pay interest on reserves.
D)the Fed does not want commercial banks to be too liquiD.

Question 6

Our currency is issued by

A)the United States Treasury.
B)the Federal Reserve.
C)individual commercial banks.
D)the Internal Revenue Service.

Question 7

When there is a great deal of inflation the Fed will

A)sell securities on the open market.
B)buy securities on the open market.
C)both sell and buy securities on the open market.
D)not sell nor buy securities on the open market.

Question 8

Which statement is true?

A)The chairman of the Federal Reserve Board is appointed to that position for one 14-year term.
B)The chairman may be fired at any time by the President.
C)Most presidents get to appoint all the members of the Federal Reserve Board.
D)None of the statements are true.

Question 9

There are _____ members of the Board of Governors of the Federal Reserve;each serves one _____ year term.

A)7;14
B)14;7
C)7;7
D)14;14

Question 10

Which statement is true?

A)Open market operations are carried out by the President and Congress.
B)The rate of growth of our money supply is set by law.
C)The most powerful policy weapon of the Federal Reserve is raising and lowering the discount rate.
D)The President's appointment of the chairman of the Federal Reserve must be approved by Congress.

Question 11

Which statement is false?

A)The main job of the Fed is to control the rate of monetary growth.
B)The Fed is more effective at fighting inflation than recession.
C)Open market operations are carried out for the Fed by private government bond dealers.
D)None of the statements are false.

Question 12

Vault cash would be considered

A)a primary reserve.
B)a secondary reserve.
C)both a primary and a secondary reserve.
D)neither a primary nor a secondary reserve.

Question 13

The members of the Board of Governors are appointed by

A)the president.
B)Congress.
C)the Federal Reserve district banks.
D)the member banks.

Question 14

Which statement is true?

A)The Federal Open Market Committee has very little power.
B)The Federal Reserve rarely raises or lowers the discount rate.
C)Our money supply grows at a rate of between three and four percent a year.
D)The Federal Reserve rarely changes the reserve requirements.

Question 15

The United States did not have a central bank until

A)1900.
B)1913.
C)1929.
D)1946.
E)1973.

Question 16

Which is not a job of the Federal Reserve?

A)Check clearing
B)Issuing currency
C)Insuring bank deposits
D)Controlling the rate of growth of the money supply

Question 17

Which statement is false?

A)Time deposits are subject to higher reserve requirements than checking deposits.
B)Treasury bills and notes are generally considered part of a bank's secondary reserves.
C)Large banks are subject to a 10 percent reserve requirement on nearly all of their checking deposits.
D)None of the statements are false.

Question 18

A woman in Duluth,Minnesota,bought tickets to a Minnesota Vikings game.Her check was deposited in a bank in Minneapolis.From there it went directly to

A)the Federal Reserve District Bank in Minneapolis.
B)the Federal Reserve Bank in Washington,
C)her bank in Duluth.
D)C.

Question 19

Which statement is true?

A)We have had a central bank since 1789.
B)We have never had a central bank.
C)Our central bank was formed in 1913.
D)We did not have a central bank prior to the Federal Reserve.

Question 20

Which statement is true?

A)Actual reserves - required reserves = excess reserves.
B)Required reserves - actual reserves = excess reserves.
C)Required reserves + actual reserves = excess reserves.
D)None of the statements are true.

Question 21

The Federal Open Market Committee has _____ members.

A)7
B)10
C)12
D)14
E)17

Question 22

Which statement is true about the Fed's Governing Board?

A)They can be removed from office by the President.
B)They can be removed from office by Congress.
C)They serve for life.
D)None of the statements are true about the Fed's Governing BoarD.

Question 23

All of the nation's financial institutions came under the jurisdiction of the Federal Reserve in

A)1913.
B)1933.
C)1948.
D)1980.

Question 24

Commercial banks are required by law to hold reserves.These reserves are specified as percentages of a bank's

A)total assets.
B)total liabilities.
C)checkable deposit liabilities.
D)holdings of government securities.
E)net worth.

Question 25

When the Fed buys United States bonds,

A)excess reserves in commercial banks are increased immediately.
B)the banking system will decrease the number of loans that are made.
C)total bank reserves are decreased.
D)the value of the money multiplier slowly declines to a new stationary level.
E)the money supply will eventually decline as banks are forced to call loans due to meet reserve requirements.

Question 26

Which of the following Federal Reserve Banks is most instrumental in carrying out the policy directives of the Board of Governors?

A)The Federal Reserve Bank of Richmond
B)The Federal Reserve Bank of St.Louis
C)The Federal Reserve Bank of San Francisco
D)The Federal Reserve Bank of New York

Question 27

The reserve requirement ratio is equal to

A)required reserves divided by excess reserves.
B)legal required reserves times the deposit multiplier.
C)total checkable deposits times the deposit multiplier.
D)total checkable deposits times the excess reserve ratio.
E)legal required reserves divided by total checkable deposits.

Question 28

The Depository Institutions Deregulation and Monetary Control Act of 1980 accomplished which one of the following reforms?

A)Established a uniform set of reserve requirements for all depository institutions.
B)Established maximum and minimum interest rates which depository institutions were permitted to pay on checkable deposits.
C)Shifted to the United States Treasury the responsibility for setting the discount rate.
D)Provided presidential veto power over setting reserve requirements.

Question 29

The Federal Open Market Committee is made up of all of the following,except

A)the board of governors.
B)the chairman of the board of governors.
C)the president of the United States.
D)the president of the Federal Reserve Bank of New York.
E)the presidents of four Federal Reserve Banks other than the New York Bank.

Question 30

The Board of Governors of the Federal Reserve is independent of

A)both the President and Congress.
B)neither the President nor Congress.
C)the President,but not Congress.
D)Congress,but not the President.

Question 31

Statement I: The president basically makes monetary policy.
Statement II: The Board of Governors of the Fed serves at the president's pleasure and can be summarily dismissed.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 32

The Federal Reserve System was NOT

A)established with the 1913 passage of the Federal Reserve Act.
B)the first attempt to have a United States central bank.
C)intended to act as a "lender of last resort."
D)designed to lend money to inherently sound banks so that they can survive financial panics.

Question 33

During the course of a bad recession the Fed would probably be doing each of the following,except

A)selling securities on the open market.
B)lowering interest rates.
C)lowering reserve requirements.
D)lowering the discount rate.

Question 34

Which statement is true?

A)The Fed can induce people to buy United States government securities,but it can't induce them to sell.
B)The Fed can induce people to sell United States government securities,but it can't induce them to buy.
C)The Fed can induce people to buy and sell United States government securities.
D)The Fed cannot induce people to buy or sell United States government securities.

Question 35

Which statement is true?

A)All large banks have to hold about 10 percent of their time deposits on reserve.
B)All small banks have to hold about 10 percent of their time deposits on reserve.
C)All banks have to hold about 10 percent of their time deposits on reserve.
D)None of the statements are true.

Question 36

There is virtually no difference between

A)primary reserves and secondary reserves.
B)secondary reserves and required reserves.
C)required reserves and primary reserves.

Question 37

The rate of growth of our money supply is controlled by

A)the president.
B)Congress.
C)the Federal Reserve.
D)the United States Treasury.
E)tax legislation.

Question 38

Required reserves are

A)equal to total reserves minus excess reserves.
B)equal to total reserves minus checkable deposits.
C)always less than total reserves.
D)determined by multiplying the level of checkable deposits times the discount rate.
E)always equal to outstanding loans times the reserve requirement ratio.

Question 39

If the required reserve ratio was lowered

A)banks would be prompted to reduce their lending.
B)the size of the monetary multiplier would increase.
C)the actual reserves of banks would increase.
D)None of the choices are correct.

Question 40

Which of the following statements best describes the twelve Federal Reserve Banks?

A)They are privately owned and privately controlled central banks whose basic goal is to provide an ample and orderly market for United States Treasury securities.
B)They are privately owned and publicly controlled central banks whose basic function is to minimize the risks in commercial banking in order to make it a reasonably profitable industry.
C)They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.
D)They are privately owned and publicly controlled central banks whose basic goal is to earn profits for their owners.
E)They are publicly owned and publicly controlled central banks whose basic goal is to provide income for the Treasury.

Question 41

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.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 42

Which statement is true?

A)Banks get a significant part of their total revenue from interest on their primary reserves.
B)Banks try to carry as much in excess reserves as they possibly can.
C)Only a small fraction of the nation's banks are subject to the reserve requirements of the Federal Reserve.
D)The banks have received interest on their reserves since October,2008.

Question 43

The discount rate refers to

A)the penalty paid by risky bank borrowers;that is,the amount of interest they pay in excess of the prime rate.
B)the rate at which banks write off bad loans.
C)the rate at which assets lose their real value as a result of inflation.
D)the rate at which money loses its value as a result of inflation.
E)the rate of interest that the Fed charges on loans to commercial banks and thrift institutions.

Question 44

Which statement is true?

A)Open market operations are seldom conducted any more.
B)The basic way the Fed controls the money supply is by manipulating the discount rate.
C)During periods of severe recession,the Fed tries to push up interest rates.
D)During periods of severe inflation,the Fed tries to push up interest rates.

Question 45

The deposit expansion multiplier is

A)the reserve ratio.
B)the excess reserves.
C)the reciprocal of the reserve ratio.
D)the reciprocal of the discount rate.
E)equal to 1.

Question 46

Which of the following will increase commercial bank reserves?

A)The purchase of government bonds in the open market by the Federal Reserve Banks
B)An increase in the reserve ratio
C)An increase in the discount rate
D)The sale of government bonds in the open market by the Federal Reserve Banks

Question 47

The Depository Institutions Deregulation Monetary Control Act of 1980

A)enhanced the distinction between banks which are members of the Federal Reserve System and those which are not.
B)requires thrift institutions to be subject to the same limitations upon the creation of checkable deposits as are commercial banks.
C)prohibited thrift institutions from offering checkable deposits.
D)reduced the degree of competition between commercial banks and the thrift institutions.

Question 48

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

A)raise;help
B)raise;hurt
C)lower;help
D)lower;hurt

Question 49

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.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 50

Monetary policy consists of

A)actions taken by both the legislative and executive branches of government to control the nation's money supply.
B)actions taken by Congress to control the nation's money supply.
C)actions taken by the Federal Reserve System to control the nation's money supply.
D)actions taken by the executive branch of government to control the nation's money supply.

Question 51

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

A)All checkable deposits,whether at commercial banks,savings banks,savings and loan associations,or credit unions will have the same reserve requirements.
B)The Fed has the power to change the reserve requirement on checkable deposits at commercial banks but not credit unions.
C)The Fed has the power to set the reserve requirement on checkable deposits at credit unions,but once set,the reserve requirement cannot be changed for two years.
D)Commercial and savings banks are regulated by the Fed,but credit unions and state banks are not subject to regulations,but must pay dues to the FeD.
E)Credit unions and state banks must abide by Fed reserve requirements,but are denied access to borrowing at the discount window.

Question 52

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

A)reduce banks' excess reserves.
B)increase banks' excess reserves.
C)leave banks' excess reserves unchanged.
D)lower the reserve requirement.
E)expand the money supply.

Question 53

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

A)the ability to set reserve requirements.
B)the discount rate.
C)open market operations.
D)margin requirements on stock purchases.

Question 54

The Federal Reserve System controls the money supply primarily through

A)open market operations.
B)accounting operations.
C)reserve requirement changes.
D)jawboning.
E)changing the discount rate.

Question 55

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.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 56

The purpose of establishing the Federal Reserve System was

A)to regulate commercial banking.
B)to provide for a more elastic currency.
C)to increase the confidence in the nation's banks.
D)All of the choices are correct.

Question 57

Which statement is true?

A)The Federal Reserve has an excellent record as a "lender of last resort."
B)There is little debate about whether or not the Federal Reserve Board should be independent.
C)The power of the Federal Reserve is centered largely in its Board of Governors.
D)The stockholders in the Federal Reserve receive large profits.

Question 58

When the Fed issues currency

A)this increases our money supply only if it replaces old,worn-out currency.
B)this increases our money supply only if it is used to accommodate the public's desire to hold more currency.
C)this increases our money supply either if it replaces old,worn currency,or if it is used to accommodate the public's desire to hold more currency.
D)this does not increase our money supply.

Question 59

Bank panics were the result of

A)banks holding 100% of their deposits on reserve.
B)depositors attempting to withdraw more deposits than the banks held in reserve.
C)banks hoarding greenbacks during the Civil War.
D)the United States going off the gold standard in 1933.
E)money circulating too slowly.

Question 60

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%.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 61

Which one of the following equations is correct?

A)Total reserves minus excess reserves equals required reserves.
B)Excess reserves minus required reserves equals total reserves.
C)Required reserves equals excess reserves divided by total reserves.
D)Total reserves equals excess reserves divided by required reserves.
E)Excess reserves plus outstanding loans equals total reserves.

Question 62

Which is NOT a legal reserve?

A)Vault cash
B)Government securities
C)Deposits at a Federal Reserve Bank

Question 63

When the Fed purchases securities on the open market,the securities it buys are

A)common stock of United States corporations.
B)corporate bonds.
C)securities issued by state governments.
D)securities issued by the federal government.
E)All of the choices are true.

Question 64

The responsibility for monetary policy in the United States lies with

A)the president.
B)the presidents of the Federal Reserve Banks.
C)the chairman of the Board of Governors of the Federal Reserve System.
D)the Board of Governors of the Federal Reserve System.
E)both the president and the chairman of the Federal Reserve Board of Governors.

Question 65

The Federal Reserve System could increase the money supply by

A)selling United States bonds.
B)reducing reserve requirements and lowering discount rates.
C)increasing marginal tax rates.
D)raising discount rates.
E)rationing consumer credit.

Question 66

The federal funds rate is the interest rate for

A)reserves that banks borrow from the Fed.
B)the preferred customers of the banks.
C)reserves borrowed by one bank from another bank.
D)banks belonging to the Federal Reserve System.

Question 67

An increase in the money supply is likely to

A)lower interest rates.
B)raise interest rates.
C)decrease the quantity of money demanded.

Question 68

If the monetary authorities want to lower the size of the monetary multiplier,they should

A)lower the legal reserve ratio.
B)raise the legal reserve ratio.
C)take actions to increase bank reserves.
D)take none of these actions.

Question 69

If Mellon Bank has demand deposits of $6 billion and excess reserves of $50 million,and the reserve requirement is 10%,the bank's actual reserves are

A)$550 million.
B)$600 million.
C)$650 million.
D)$1 billion.
E)$1.05 billion.

Question 70

The most powerful individual in the Federal Reserve System is the

A)senior member of the Federal Open Market Committee.
B)Superintendent of the Board of Governors.
C)Chairman of the Federal Reserve Board.
D)New York District Bank President.

Question 71

When the Federal Reserve sells U.S.government securities on the open market,this tends to ____ banks reserves and ______ the money supply.

A)raise;raise
B)lower;lower
C)raise;lower
D)lower;raise

Question 72

If Suntrust Banks have demand deposits of $10 billion,actual reserves of $2 billion,and the reserve requirement is 18%,the bank's excess reserves are

A)$180 million.
B)$200 million.
C)$360 million.
D)$400 million.
E)$1 billion.

Question 73

Which statement is true?

A)The main way the Fed controls the money supply is by raising or lowering the discount rate.
B)The Federal Reserve is barred by law from owning United States government securities.
C)The Federal Reserve insures bank deposits up to $100,000.
D)None of the statements are true.

Question 74

If the current equilibrium output level is above the full-employment output level,the Fed should consider

A)selling government securities,raising the discount rate,and raising the required reserve ratio.
B)selling government securities,lowering the discount rate,and raising the required reserve ratio.
C)buying government securities,lowering the discount rate,and raising the required reserve ratio.
D)buying government securities,raising the discount rate,and raising the required reserve ratio.
E)selling government securities,raising the discount rate,and lowering the required reserve ratio.

Question 75

If NCNB Corp's deposits are $12.5 billion,its excess reserves are $100 million,and the reserve requirement is 10%,its actual reserves are

A)$100 million.
B)$1.15 billion.
C)$1.25 billion.
D)$1.35 billion.
E)$12.5 billion.

Question 76

Reserve requirements for checking accounts are ____ those on time deposits.

A)higher than
B)lower than
C)the same as

Question 77

Banks that receive their charters from the federal government are called

A)official banks.
B)government banks.
C)state banks.
D)federal banks.
E)national banks.

Question 78

The discount rate is the interest

A)rate at which the central banks lend to the United States Treasury.
B)rate at which the Federal Reserve Banks lend to commercial banks and thrift institutions.
C)yield on long-term government bonds.
D)rate at which commercial banks and thrifts lend to the public.

Question 79

A reduction in the required reserve ratio would cause the interest rates to

A)increase only if the level of investment is low relative to historic levels.
B)decrease.
C)increase.
D)increase only if the level of unemployment is high.
E)remain the same.

Question 80

If First Interstate Bankcorp has demand deposits of $8 billion,actual reserves of $1.4 billion,and the reserve requirement is 15%,the bank's excess reserves are

A)$100 million.
B)$200 million.
C)$400 million.
D)$800 million.
E)1 billion.