Question 1

To conduct open market operations,the FOMC issues a directive to

Accepted Answer

The FOMC issues a directive to the Open Market Desk at the Federal Reserve Bank of New York to conduct open market operations, which involves buying or selling government securities in the open market to influence the supply of money and credit in the economy. The other choices are not involved in the execution of open market operations.

Question 2

The original intent of the Federal Reserve Act of 1913 was to provide the Fed with what role?

Accepted Answer

The Federal Reserve Act of 1913 primarily established the Federal Reserve System as a central banking system of the United States, with one of its key roles being to serve as a lender of last resort to banks during financial crises to prevent bank failures and stabilize the financial system.

Question 3

Which of the following is NOT a role of Federal Reserve Banks?

Accepted Answer

The Federal Reserve Board, not the individual Federal Reserve Banks, sets the interest rate on reserves. The other options listed are indeed roles of the Federal Reserve Banks.

Question 4

How does the Fed reach its target for the federal funds rate?

Accepted Answer

The Fed reaches its target for the federal funds rate by buying and selling Treasury securities. When the Fed buys these securities on the open market, it injects money into the banking system, which can lower the federal funds rate. When the Fed sells these securities, it removes money from the banking system, which can raise the federal funds rate. Therefore, the Fed uses open market operations to influence the supply of reserves in the banking system, which in turn impacts the federal funds rate.

Question 5

A majority of the members of the boards of the 12 Federal Reserve Banks are

Accepted Answer

A majority of the members of the boards of the 12 Federal Reserve Banks are elected by bankers. This system is designed to provide the Federal Reserve with a comprehensive understanding of the financial and economic conditions across the various regions of the United States.

Question 6

Congress authorized the Second Bank of the United States partly in response to

Accepted Answer

The Second Bank of the United States was authorized in 1816, shortly after the end of the War of 1812. The war had left the young nation with significant debt and a weakened financial system. The bank was intended to provide stability to the economy and help fund government operations.

Question 7

The Bank of the United States faced opposition from which of the following?

Accepted Answer

The Bank of the United States faced opposition from all three groups: local banks who resented the Bank's supervision, advocates of limited government who distrusted its power, and farmers and small businesses who resented the Bank's interference with their ability to obtain loans.

Question 8

The Banking Acts of 1933 and 1935

Accepted Answer

The Banking Acts of 1933 and 1935 increased central control of the Federal Reserve System by giving the Board of Governors the authority to control reserve requirements and take other actions to regulate the money supply. The Acts also separated commercial banking and investment banking and established the Federal Deposit Insurance Corporation. However, they did not establish the Federal Reserve System (which had been established in 1913) or eliminate the Board of Governors' authority to set reserve requirements. The Secretary of the Treasury is not a member of the Board of Governors.

Question 9

During the financial crisis of 2007-2009,Fed Chairman Ben Bernanke relied on an informal group of three advisors to help make quick decisions on policy actions.Which of the following was NOT one of those advisors?

Accepted Answer

Treasury Secretary Henry Paulson was not one of the three advisors. The three advisors were Board of Governors member Donald Kohn, New York District Bank president Timothy Geithner, and Board of Governors member Kevin Warsh.

Question 10

The national economic forecast for the next two years prepared by the staff of the Board of Governors is published in the

Accepted Answer

The Green Book is the publication that contains the national economic forecast for the next two years prepared by the staff of the Board of Governors. The Beige Book is a summary of economic conditions in each of the 12 Federal Reserve Districts. The Blue Book and Fed Book are not commonly used terms in reference to economic publications.

Question 11

Assuming a required reserve ratio of 5%,interest rate on reserves of 1%,and interest rate on loans of 6%,what is the effective cost of the reserve requirement on a $10,000 deposit?

Accepted Answer

The effective cost of the reserve requirement is calculated by considering the opportunity cost of holding reserves instead of lending them out. With a 5% reserve requirement, $500 (5% of $10,000) must be held in reserves. The bank earns 1% interest on these reserves, but it could have earned 6% by lending the money out. The difference (6% - 1% = 5%) is the opportunity cost on the $500, which is $25. To find the effective cost as a percentage of the total deposit, divide $25 by $10,000, resulting in 0.25%.

Question 12

The Dodd-Frank Act removed which group from decisions regarding the presidents of Federal Reserve Banks?

Accepted Answer

Class A directors, who are elected by member banks to represent the banks' interests, were removed from the decision-making process regarding the presidents of Federal Reserve Banks by the Dodd-Frank Act to avoid conflicts of interest.

Question 13

The Chairman of the Federal Open Market Committee is also

Accepted Answer

The Chairman of the Federal Open Market Committee is also the Chairman of the Board of Governors. The other options (A, B, and C) are not correct as they refer to other positions and organizations within the Federal government.

Question 14

Assuming a required reserve ratio of 8%,interest rate on reserves of 0.5%,and interest rate on loans of 4%,what is the effective cost of the reserve requirement on a $1,000 deposit?

Accepted Answer

The effective cost of the reserve requirement is calculated by considering the opportunity cost of holding reserves instead of lending them out. With an 8% reserve requirement, $80 must be held in reserves. The bank earns 0.5% interest on these reserves, which is $0.40 ($80 * 0.5%). If the bank could lend out the $80 at 4%, it would earn $3.20 ($80 * 4%). The difference, $2.80, represents the opportunity cost of the reserve requirement on a $1,000 deposit. To find the percentage cost, divide $2.80 by $1,000, resulting in 0.28%.

Question 15

If a member of the Board of Governors is limited to one 14-year term,how did Alan Greenspan serve 19 years on the Board of Governors?

Accepted Answer

Greenspan was able to serve for 19 years because he first completed the remaining years of a predecessor's term before serving his own full 14-year term.

Question 16

Which of the following statements regarding member banks is TRUE?

Accepted Answer

A minority of banks are part of the Federal Reserve System, but these banks are typically larger and therefore hold a majority of all bank deposits in the United States.

Question 17

Which of the following is NOT a responsibility of the Board of Governors?

Accepted Answer

Open market operations are carried out by the Federal Reserve's Open Market Committee, which includes members of the Board of Governors and Reserve Bank presidents. Therefore, it is not solely the responsibility of the Board of Governors. The other responsibilities listed are all duties of the Board of Governors.

Question 18

The Beige Book is prepared by

Accepted Answer

The Beige Book is prepared by the Federal Reserve's district banks and provides an overview of economic conditions in each district, which is used by the Federal Reserve to make monetary policy decisions.

Question 19

In 1976,Congress passed legislation which requires most federal government agencies to give public notice before a meeting.This legislation is the

Accepted Answer

The Government in the Sunshine Act, also known as the Sunshine Act, mandates that most federal agencies must provide advance public notice of their meetings and make them open to the public. This law was passed by Congress in 1976 to increase transparency and accountability in the federal government. The other options – Increased Transparency Act, No-Stone-Unturned Act, and Dodd-Frank Act – are not related to the requirement of public notice before a meeting.

Question 20

The president of which Federal Reserve Bank is always a voting member of the Federal Open Market Committee?

Accepted Answer

The president of the Federal Reserve Bank of New York is always a voting member of the Federal Open Market Committee (FOMC). This is because the New York Fed is responsible for implementing monetary policy, and it is also the primary liaison between the FOMC and the financial markets.

Quiz 13: The Federal Reserve and Central Banking