Question 1

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 these are correct.

Accepted Answer

When the supply of funds in the banking system increases, there is more money available for banks to lend out. This increased availability typically leads to a decrease in the federal funds rate, as banks are less inclined to charge high rates when they have ample reserves.

Question 2

____ open market operations offset the impact of other conditions that affect the level of funds. ​
A)Active
B)Passive
C)Dynamic
D)Defensive

Accepted Answer

Defensive open market operations are conducted to offset the impact of other conditions that affect the level of funds, aiming to maintain the federal funds rate target.

Question 3

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)increase; purchased AND increase; sold

Accepted Answer

When the Federal Reserve purchases securities, it pays for these securities by adding the amount to the reserves of the banks, effectively increasing the total funds of commercial banks.

Question 4

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

Accepted Answer

The Securities and Exchange Commission (SEC) is not a part of the Federal Reserve System. The SEC is an independent federal government agency responsible for regulating the securities industry, and enforcing federal securities laws. It is not involved in monetary policy or bank regulation, which are the responsibilities of the Federal Reserve System.

Question 5

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
D)real

Accepted Answer

The primary credit rate is the interest rate charged by the Federal Reserve on short-term loans to depository institutions.

Question 6

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)state banks AND national banks

Accepted Answer

National banks are required to be members of the Federal Reserve System, as mandated by the National Banking Act of 1863. This requirement ensures that national banks adhere to the regulations and standards set by the Federal Reserve.

Question 7

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

Accepted Answer

The Consumer Financial Protection Bureau (CFPB) was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to regulate financial products and services, especially with respect to consumer protection.

Question 8

The main purpose of the Fed's lending facility is to control the money supply.

Accepted Answer

The main purpose of the Fed's lending facility is to provide liquidity to financial institutions, not directly control the money supply.

Question 9

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

Accepted Answer

Fed district banks do not act as intermediaries to match up lenders and borrowers in the stock market. Their primary functions include clearing checks, replacing old currency, and providing loans to depository institutions, among other responsibilities related to the banking system and monetary policy.

Question 10

The policy directive is provided by the Board of Governors to the FOMC.

Accepted Answer

The Federal Open Market Committee (FOMC) operates under a mandate from the Board of Governors of the Federal Reserve System, but it formulates its own policy directives regarding open market operations, which are a key tool for implementing U.S. monetary policy.

Question 11

Repurchase agreements are purchased by the Fed to _________ the aggregate level of bank funds.
A)temporarily decrease
B)permanently increase
C)permanently decrease
D)temporarily increase

Accepted Answer

Repurchase agreements (repos) are used by the Federal Reserve to temporarily increase the aggregate level of bank funds. They are short-term agreements to purchase securities with the promise to sell them back at a slightly higher price, effectively injecting liquidity into the banking system.

Question 12

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.

Accepted Answer

When someone other than the Fed purchases government securities, it results in offsetting changes in funds at commercial banks because the buyer's bank account decreases while the seller's bank account increases by the same amount.

Question 13

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

Accepted Answer

The Board of Governors is the correct answer because it consists of seven members who are appointed by the President of the United States and confirmed by the Senate. These members play a key role in the Federal Reserve System, the central banking system of the United States.

Question 14

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 these are correct.

Accepted Answer

When open market operations are used to reduce bank funds, the Federal Reserve sells securities. This action takes money out of circulation and out of banks, reducing the supply of loanable funds. As a result, the cost of borrowing (interest rates or yield on debt instruments) increases due to the decreased supply of money.

Question 15

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

Accepted Answer

The Federal Reserve's Board of Governors has direct control over revising reserve requirements for depository institutions. This is a tool of monetary policy used to influence the amount of funds that banks must hold in reserve against deposits, thereby affecting the bank's ability to lend and, consequently, the money supply.

Question 16

The main monetary policy goal of most central banks is to stabilize the value of the local currency against foreign currencies.

Accepted Answer

The main monetary policy goal of most central banks is to maintain price stability (controlling inflation) and to achieve low and stable inflation, rather than specifically stabilizing the value of the local currency against foreign currencies.

Question 17

The primary credit rate is the interest rate that the Fed charges the most creditworthy depository institutions for short-term loans.

Accepted Answer

The primary credit rate, often referred to as the discount rate, is indeed the interest rate set by the Federal Reserve for lending to the most financially sound, or creditworthy, depository institutions on a short-term basis.

Question 18

Members of the Board of Governors serve 14-year nonrenewable terms.

Accepted Answer

Members of the Federal Reserve's Board of Governors are appointed to 14-year nonrenewable terms to ensure stability and reduce political pressure on their decision-making.

Question 19

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

Accepted Answer

The Federal Reserve (Fed) uses open market operations, which involve buying or selling Treasury securities in the secondary market, as a primary tool to control the money supply. Buying securities injects money into the banking system, increasing the money supply, while selling securities withdraws money, decreasing the money supply. Options B, C, and D are not actions taken by the Fed to directly influence the money supply.

Question 20

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)regulating commercial banks AND controlling monetary policy

Accepted Answer

The Federal Reserve's Board of Governors plays a crucial role in both regulating commercial banks and controlling monetary policy, which includes influencing interest rates and the availability of credit in the economy.

Quiz 4: Functions of the Fed

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

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

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

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

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

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

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

The main purpose of the Fed's lending facility is to control the money supply.

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

The policy directive is provided by the Board of Governors to the FOMC.

Repurchase agreements are purchased by the Fed to _________ the aggregate level of bank funds.

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

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

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

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

The main monetary policy goal of most central banks is to stabilize the value of the local currency against foreign currencies.

The primary credit rate is the interest rate that the Fed charges the most creditworthy depository institutions for short-term loans.

Members of the Board of Governors serve 14-year nonrenewable terms.

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

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

Quiz 4: Functions of the Fed

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

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

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

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

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

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

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

The main purpose of the Fed's lending facility is to control the money supply.

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

The policy directive is provided by the Board of Governors to the FOMC.

Repurchase agreements are purchased by the Fed to _________ the aggregate level of bank funds.

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

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

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

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

The main monetary policy goal of most central banks is to stabilize the value of the local currency against foreign currencies.

The primary credit rate is the interest rate that the Fed charges the most creditworthy depository institutions for short-term loans.

Members of the Board of Governors serve 14-year nonrenewable terms.

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

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

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

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

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

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

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

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

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

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