Question 1

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

In an open market purchase, the Fed buys government securities from a commercial bank, which increases the bank's reserves at the Fed and increases the bank's deposits. Therefore, the correct choice is B, which states that the Fed buys securities from the Fed itself, raises the bank's deposits at the Fed, and increases the bank's reserves.

Question 2

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 is appointed for a term of 14 years. The Board of Governors is comprised of 7 members, and the Federal Open Market Committee (FOMC) is comprised of 12 members.

Question 3

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

Accepted Answer

The interest rate that one bank pays to another for a loan is called the federal funds rate. This is the rate at which banks can borrow money from each other overnight in order to meet required reserve levels or to satisfy short-term funding needs. It is determined by the Federal Reserve, and influences other interest rates throughout the economy. A, B, C, and E are not related to the interest rate one bank pays another bank for a loan.

Question 4

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 5

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, then banks are currently holding only the required reserves. When the Fed lowers the required reserve ratio, the required reserves go down, giving banks more excess reserves, which they can then use to extend loans and create new checkable deposits. Choice B is incorrect because negative excess reserves would imply that banks are holding less than the required reserves, which would be a violation of banking regulations. Choice C is correct in terms of positive excess reserves, but currency is not something that banks can use to create new deposits - only checkable deposits can do that. Choice D is incorrect because the question does not mention anything about vault cash, and even if banks were to receive more vault cash, that would not necessarily translate into more lending unless they had excess reserves to begin with.

Question 6

Which of the following will increase the money supply?

Accepted Answer

None of the given options will increase the money supply. Increasing the required reserve ratio will decrease the money supply by requiring banks to hold more reserves. An open market sale will decrease the money supply by reducing the amount of money available in the economy. Raising the discount rate relative to the federal funds rate will discourage banks from borrowing from the Federal Reserve, leading to a decrease in the money supply.

Question 7

If Bank A borrows from Bank B,reserves in the banking system __________.If Bank A borrows from the Fed,reserves in the banking system __________.

Accepted Answer

When Bank A borrows from Bank B, the reserves simply shift from one bank to another, leaving the total reserves in the banking system unchanged. However, when Bank A borrows from the Federal Reserve, new reserves are added to the banking system, causing the total reserves to rise.

Question 8

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

Accepted Answer

The Federal Reserve System does not serve as the government's tax collector. This function is performed by the Internal Revenue Service (IRS).

Question 9

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

Accepted Answer

The Federal Open Market Committee (FOMC) is the major policy-making group within the Fed. It consists of the seven members of the Board of Governors and the presidents of five of the twelve Federal Reserve Banks. The FOMC is responsible for setting monetary policy, including decisions about interest rates and the supply of money in the economy.

Question 10

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 11

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), due to the New York Fed's key role in executing monetary policy and its close proximity to financial markets.

Question 12

If the Fed lowers the discount rate (relative to the federal funds rate),banks will (likely)borrow __________ from the Fed,which will __________ reserves in the banking system,and eventually __________ the money supply.

Accepted Answer

If the Fed lowers the discount rate (relative to the federal funds rate), banks will likely borrow more from the Fed because the cost of borrowing has decreased. This will increase reserves in the banking system because the borrowed funds will be deposited in banks' reserve accounts. Eventually, this will raise the money supply because banks will now have more reserves with which to make loans.

Question 13

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 exchange reserves for these securities.

Question 14

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

Accepted Answer

The answer of A decrease in the required reserve ratio...

Question 15

If reserves increase by $5 million,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

The answer of If reserves increase by $5 million,what is...

Question 16

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

Accepted Answer

The answer of Which of the following is not a...

Question 17

The most important responsibility of the Fed is to

Accepted Answer

The primary responsibility of the Federal Reserve or the Fed is to control and manage the money supply in the economy through its monetary policy tools. This is an important function as it helps in maintaining price stability, promoting economic growth, and achieving full employment. While the Fed also performs other functions such as clearing checks, supervising member banks, and serving as the fiscal agent for the U.S. Treasury, these are secondary to its main responsibility of controlling the money supply.

Question 18

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 19

If the Fed lowers the discount rate at the same time it conducts an open market sale,it follows that

Accepted Answer

Lowering the discount rate typically encourages banks to borrow more from the Fed, which can increase the money supply. Conversely, an open market sale (selling securities) typically reduces the money supply by pulling liquidity out of the banking system. These actions have opposing effects on the money supply, making it unclear without additional information how the money supply will ultimately be affected.

Question 20

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

Accepted Answer

When the Federal Reserve buys or sells securities on the open market, it affects the money supply in the economy. Buying securities creates new money and increases the money supply, while selling securities removes money and decreases the money supply. This can have a ripple effect on the economy, impacting interest rates, inflation, and economic growth. However, it does not directly impact the budget deficit or income tax rates.

Quiz 13: The Federal Reserve System

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 __.

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.

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

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

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 .

Which of the following will increase the money supply?

If Bank A borrows from Bank B,reserves in the banking system .If Bank A borrows from the Fed,reserves in the banking system .

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

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

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

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

If the Fed lowers the discount rate (relative to the federal funds rate) ,banks will (likely) borrow from the Fed,which will reserves in the banking system,and eventually __ the money supply.

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

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

If reserves increase by $5 million,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?

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

The most important responsibility of the Fed is to

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 .

If the Fed lowers the discount rate at the same time it conducts an open market sale,it follows that

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

Quiz 13: The Federal Reserve System

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 __________.

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.

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

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

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 __________.

Which of the following will increase the money supply?

If Bank A borrows from Bank B,reserves in the banking system __________.If Bank A borrows from the Fed,reserves in the banking system __________.

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

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

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

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

If the Fed lowers the discount rate (relative to the federal funds rate) ,banks will (likely) borrow __________ from the Fed,which will __________ reserves in the banking system,and eventually __________ the money supply.

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

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

If reserves increase by $5 million,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?

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

The most important responsibility of the Fed is to

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 __________.

If the Fed lowers the discount rate at the same time it conducts an open market sale,it follows that

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

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 __.

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.

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

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 .

If Bank A borrows from Bank B,reserves in the banking system .If Bank A borrows from the Fed,reserves in the banking system .

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

If the Fed lowers the discount rate (relative to the federal funds rate) ,banks will (likely) borrow from the Fed,which will reserves in the banking system,and eventually __ the money supply.

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

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 .