Deck 4: Functions of the Fed

Question 1

The the reserve requirement ratio, the the ultimate effect of any initial increase in the money supply.

A) lower; less
B) lower; greater
C) greater; less
D) B and C

Answer 1

D

Question 2

Which of the following is currently a main role of the Federal Reserve's Board of Governors?

A) regulating commercial banks
B) regulating foreign trade
C) controlling monetary policy
D) A and C

Answer 2

D

Question 3

Which of the following is not an activity of Fed district banks?

A) clearing checks
B) replacing old currency
C) providing loans to depository institutions
D) acting as an intermediary to match up lenders and borrowers in the stock market

Answer 3

D

Question 4

As a result of the Financial Reform Act of 2010, the ____ was established to regulate financial products and services.

A) Federal Advisory Committee
B) Federal Open Market Committee
C) Consumer Financial Protection Bureau
D) Board of Governors

Question 5

The purchase of government securities by someone other than the Fed results in

A) an overall increase in funds among commercial banks.
B) an overall decrease in funds among commercial banks.
C) offsetting changes in funds at commercial banks.
D) an increase in securities maintained by the Fed.

Question 6

Repurchase agreements are purchased by the Fed to

A) temporarily decrease the aggregate level of bank funds.
B) permanently increase the aggregate level of bank funds.
C) permanently decrease the aggregate level of bank funds.
D) temporarily increase the aggregate level of bank funds.

Question 7

Assume that the reserve requirements ratio is 15 percent. An initial injection of $150 million could result in a maximum change in the money supply of

A) $150 million.
B) $1 billion.
C) $1 million.
D) $22.5 million.

Question 8

Which of the following is an action that the Fed uses to increase or decrease the money supply?

A) buying or selling Treasury securities in the secondary market
B) adjusting the tax rate imposed on income earned on Treasury securities
C) adjusting the coupon rate on Treasury bonds
D) selling Treasury securities in the primary market

Question 9

When open market operations are used to ____ bank funds, the yield on debt instruments ____.

A) reduce; decreases
B) reduce; increases
C) increase; increases
D) none of the above

Question 10

With regard to monetary policy, which of the following is under the direct control of the Federal Reserve's Board of Governors?

A) revising reserve requirements for depository institutions
B) authorizing changes in the amount of borrowing by the Treasury
C) monitoring the stock market for insider trading
D) monitoring the derivatives market for illegal trading strategies

Question 11

____ open market operations offset the impact of other conditions that affect the level of funds.

A) Active
B) Passive
C) Dynamic
D) Defensive

Question 12

Which of the following is not a major component of the Federal Reserve System?

A) member banks
B) Federal Open Market Committee
C) Securities and Exchange Commission
D) Board of Governors

Question 13

The ____ rate is the interest rate charged on the Fed's short-term loans to depository institutions.

A) federal funds
B) prime
C) primary credit lending
D) real

Question 14

All ____ are required to be members of the Federal Reserve System.

A) state banks
B) national banks
C) savings and loan associations
D) finance companies
E) A and B

Question 15

Credit may be used for any purpose and is available only to depository institutions that meet specific requirements for financial soundness.

A) Primary
B) Secondary
C) Tertiary
D) None of the above

Question 16

The ____ is made up of seven individual members, and each member is appointed by the president of the United States.

A) Board of Governors
B) Federal Reserve district bank
C) Federal Open Market Committee (FOMC)
D) Securities and Exchange Commission

Question 17

As the supply of funds in the banking system ____, the federal funds rate ____.

A) increases; declines
B) increases; increases
C) declines, declines
D) none of the above

Question 18

To decrease the money supply, the Fed could the reserve requirement ratio.

A) increase
B) stabilize
C) reduce
D) eliminate

Question 19

The is directly responsible for controlling money supply growth.

A) Federal Advisory Council
B) FOMC
C) Board of Governors
D) President of the United States

Question 20

Total funds of commercial banks will initially ____ by the dollar amount of securities ____ by the Fed.

A) increase; purchased
B) increase; sold
C) decrease; purchased
D) A and B

Question 21

The ____ is directly responsible for setting reserve requirements.

A) Federal Advisory Council
B) FOMC
C) Board of Governors
D) President of the United States

Question 22

The euro has been adopted by all of the major countries of Western Europe, including Switzerland and the United Kingdom.

Question 23

When the Trading Desk sells a sufficient amount of Treasury securities, it creates a surplus of funds in the banking system. Consequently, the federal funds rate decreases along with other interest rates.

Question 24

The effects of the credit crisis in 2008 were largely confined to the United States, so central banks in other nations did not have to reduce their targeted interest rate levels.

Question 25

The Board of Governors is composed of

A) seven members appointed by the President of the United States.
B) the 12 presidents of Fed district banks.
C) the Federal Open Market Committee, plus the Federal Advisory Council.
D) the Federal Open Market Committee, plus the President of the United States.

Question 26

Since 2003, the Fed's rate on short-term loans to depository institutions is referred to as the

A) discount rate.
B) primary credit lending rate.
C) federal funds rate.
D) prime rate

Question 27

The Trading Desk is sometimes directed to ____ a sufficient amount of Treasury securities to ____ the federal funds rate to a new targeted level set by the FOMC.

A) buy; decrease
B) sell; increase
C) buy; increase
D) sell; decrease
E) A and B

Question 28

When the Fed purchases securities, the total funds of commercial banks ____ by the market value of the securities purchased by the Fed. This activity initiated by the FOMC's policy directiveisreferred to as a(n) ____ of money supply growth.

A) increase; loosening
B) decrease; tightening
C) decrease; loosening
D) increase; tightening
E) none of the above

Question 29

Most of the Fed's income is transferred to the U.S. Department of Justice.

Question 30

Assume that the reserve requirement ratio is 12 percent and that the Fed uses open market operations to buy $200 million worth of Treasury securities. Assuming that banks use all funds exceptrequired reserves to make loans and that the public does not store any cash, the money supply should ____ by about ____.

A) increase; $200 million
B) increase; $1.67 billion
C) decrease; $200 million
D) decrease; $1.67 billion

Question 31

Each Federal Reserve district bank is responsible for reporting its regional conditions, and all of these reports are consolidated to compose the Beige Book.

Question 32

The form of money consisting of currency held by the public and checkable deposits at depository institutions is called

A) M1.
B) M2.
C) M3.
D) MMDA.

Question 33

____ in Federal Reserve float causes a(n) ____ in bank funds.

A) increase; increase
B) increase; decrease
C) decrease; decrease
D) A and C

Question 34

The chief objective of the European Central Bank is ____ in the countries of the eurozone.

A) maintaining low unemployment
B) ensuring that budget deficits do not exceed certain limits
C) maintaining price and currency stability
D) none of the above

Question 35

All commercial banks are required to be members of the Fed.

Question 36

Based on a 2003 policy, the primary credit lending rate is set

A) lower than the federal funds rate.
B) lower than the prevailing Treasury bill rate.
C) lower than the expected inflation rate.
D) above the federal funds rate.

Question 37

The Depository Institutions Deregulation and Monetary Control Act of 1980 subjected

A) only member banks to the reserve requirements set by the Fed.
B) only S&Ls to the reserve requirements set by the Fed.
C) all depository institutions to the reserve requirements set by the Fed.
D) only national banks to reserve requirements set by the Fed.

Question 38

Which of the following statements is incorrect with respect to a single European monetary policy?

A) It allows for more consistent economic conditions across the countries.
B) It prevents any participating European country from solving local economic problems with its own unique monetary policy.
C) It allows each country in Europe to use its own currency.
D) Each participating country will still be able to apply its own fiscal policy (tax and government expenditure decisions).
E) All of the above are true with respect to a single European monetary policy.

Question 39

The ____ is directly responsible for conducting monetary policy.

A) Federal Advisory Council
B) FOMC
C) Senate
D) President of the United States

Question 40

The voting members of the Federal Open Market Committee consist of the Board of Governors plus the

A) President of the United States.
B) presidents of the 12 Fed district banks.
C) presidents of 5 Fed district banks.
D) Federal Advisory Council.

Question 41

The Fed's purchases of long-term Treasury securities in recent years were intended to:

A) reduce long-term interest rates.
B) reduce interest rates on credit cards and consumer loans
C) increase the federal funds rate.
D) restore confidence in the market for these securities.

Question 42

To increase the money supply growth, the Fed could

A) sell government securities in the secondary market
B) increase the primary credit lending rate.
C) increase the reserve requirement ratio.
D) all of the above
E) none of the above

Question 43

____ includes currency held by the public and checking deposits as well as savings accounts and small time deposits, money market deposit accounts, and some other items.

A) M1
B) M2
C) M3
D) None of the above

Question 44

When the Fed buys Treasury bills as a means of increasing the money supply, it places ____ pressure on their prices and ____ pressure on their yields.

A) upward; upward
B) downward; downward
C) upward; downward
D) downward; upward

Question 45

The term "quantitative easing" refers to the Fed's:

A) purchases of only short-term Treasury securities.
B) sales of only short-term Treasury securities
C) purchases of various types of debt securities, including risky debt securities
D) purchases of only commodities such as gold.

Question 46

The ____ meets with the Board of Governors twice a year and offers views on the economic circumstances and financial services needs of consumers and communities.

A) Consumer Financial Protection Bureau
B) Federal Advisory Council
C) Community Advisory Council
D) Federal Trade Commission

Question 47

When the Fed purchases _______, it is attempting to directly stimulate the housing market.

A) commercial paper
B) short-term Treasury securities
C) mortgage-backed securities
D) consumer loans

Question 48

Adjustment of the primary credit lending rate is the most common means by which the Fed controls the money supply.

Question 49

The advisory committee offering views on issues related to credit unions is the

A) Community Advisory Council.
B) Community Depository Institutions Advisory Council
C) Federal Advisory Council.
D) Federal Open Market Committee

Question 50

When the Fed sells securities, the total funds of commercial banks ____ by the market value of the securities sold by the Fed. This activity initiated by the FOMC's policy directive is referredto as a ____ of money supply growth.

A) increase; loosening
B) decrease; loosening
C) increase; tightening
D) decrease; tightening
E) none of the above

Question 51

The advisory committee making recommendations to the Fed about economic and banking related issues is the

A) Community Advisory Council.
B) Community Depository Institutions Advisory Council.
C) Federal Advisory Council.
D) none of the above

Question 52

Which of the following is not true with respect to the Federal Reserve Act of 1913?

A) It established reserve requirements for member commercial banks.
B) It specified 14 districts across the United States as well as a city in each district where a Federal Reserve district bank was to be established.
C) Congress was motivated to pass the act and establish a central bank because the United States had experienced several banking panics in the preceding years.
D) All of the above are true.

Question 53

If the Fed initiates a program to purchase long-term Treasury securities, it is most likely attempting to:

A) reduce the rate on short-term Treasury securities.
B) reduce the rate on commercial paper
C) reduce inflation
D) reduce long-term interest rates

Question 54

To increase the money supply, the Trading Desk would be instructed to sell government securities.

Question 55

To increase the money supply, the Fed may increase the reserve requirement ratio.

Question 56

When the Fed initiated a program to purchase commercial paper, one of its primary goals was to:

A) prevent financial institutions from holding commercial paper.
B) require that financial institutions increase their holdings of commercial paper.
C) increase activity in the market for commercial paper and boost the confidence of investors in commercial paper.
D) prevent financial institutions from issuing commercial paper in the future.

Question 57

Which of the following did the Fed not do during the credit crisis?

A) purchase mortgage-backed securities
B) purchase commercial paper
C) reduce the targeted federal funds rate
D) prevent depository institutions from obtaining funding through the discount window