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

Accepted Answer

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

Accepted Answer

The Board of Governors of the Federal Reserve System currently has two main roles: regulating commercial banks and controlling monetary policy. Therefore, the best choice is D, which includes both A and C.

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

Accepted Answer

Fed district banks do not act as an intermediary to match up lenders and borrowers in the stock market. Their main activities include clearing checks, replacing old currency, and providing loans to depository institutions.

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

Accepted Answer

The Consumer Financial Protection Bureau (CFPB) was established as a result of the Financial Reform Act of 2010 to regulate financial products and services and ensure consumer protection. The other choices are not related to the establishment of the CFPB.

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.

Accepted Answer

The answer of The purchase of government securities by someone...

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.

Accepted Answer

Repurchase agreements, also known as repos, involve the Fed purchasing securities from banks with an agreement to sell them back in the future. This increases the amount of funds available to banks, thus temporarily increasing the aggregate level of bank funds. Therefore, the correct choice is D.

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.

Accepted Answer

The maximum change in the money supply is given by the money multiplier formula: 1/rr × initial injection = 1/0.15 × $150 million = $1 billion. Therefore, the correct answer is B.

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

Accepted Answer

The Fed buys or sells Treasury securities in the secondary market to increase or decrease the money supply. This is known as Open Market Operations, where the Fed buys or sells securities from banks, which in turn affects the amount of reserves held by the banks, thus changing the money supply. Option B is incorrect, as the tax rate on income earned on Treasury securities is determined by the government and not by the Fed. Option C is incorrect, as adjusting the coupon rate on Treasury bonds affects the behavior of investors, but not the money supply directly. Option D is incorrect, as selling Treasury securities in the primary market is done by the Treasury, not the Fed.

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

Accepted Answer

When open market operations are used to reduce bank funds, the central bank sells securities, which decreases the money supply and increases interest rates, leading to an increase in the yield on debt instruments.

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

Accepted Answer

Revising reserve requirements for depository institutions is one of the tools under the direct control of the Federal Reserve's Board of Governors to implement monetary policy. The other choices listed are not directly related to monetary policy and are outside the scope of the Federal Reserve's responsibilities.

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

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 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

Accepted Answer

The Securities and Exchange Commission is not a major component of the Federal Reserve System. The major components of the Federal Reserve System include member banks, Federal Open Market Committee, and the 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

Accepted Answer

The primary credit lending rate is the interest rate charged by the Federal Reserve's lending facility, the discount window, for short-term loans to depository institutions. The federal funds rate is the interest rate at which banks lend reserves to each other overnight. The prime rate is the interest rate commercial banks charge their most creditworthy customers. The real rate is the nominal interest rate adjusted for inflation.

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

Accepted Answer

National banks are required by law to be members of the Federal Reserve System. State banks have the option to join but are not required.

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

Accepted Answer

The description suggests that the credit being referred to is primary credit, which is available only to financially sound depository institutions and can be used for any purpose. Secondary credit is typically reserved for institutions experiencing temporary liquidity problems, while tertiary credit is meant for institutions with severe financial difficulties. However, the description doesn't provide any indication that the credit is off a particular type (such as seasonal, extended, etc.), so the answer cannot be D.

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

Accepted Answer

The Board of Governors of the Federal Reserve System is composed of seven members, each appointed by the President of the United States and confirmed by the Senate.

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

Accepted Answer

The federal funds rate represents the interest rate at which banks lend and borrow funds from each other overnight. When the supply of funds in the banking system increases, it means there is more money available to lend among banks, which puts downward pressure on the federal funds rate, causing it to decline. Conversely, when the supply of funds in the banking system declines, banks have less money available to lend, which puts upward pressure on the federal funds rate, causing it to increase.

Question 18

To decrease the money supply, the Fed could the reserve requirement ratio.
A) increase
B) stabilize
C) reduce
D) eliminate

Accepted Answer

To decrease the money supply, the Fed could increase the reserve requirement ratio, which would require banks to hold a larger portion of their deposits as reserves and limit their ability to lend out money.

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

Accepted Answer

The Federal Open Market Committee (FOMC) is directly responsible for overseeing the nation's open market operations and managing the money supply and interest rates.

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

Accepted Answer

When the Fed purchases securities, it injects reserves into the banking system, increasing the total funds of commercial banks. Therefore, the correct option is A. On the other hand, when the Fed sells securities, it reduces the reserves available to banks, leading to a decrease in the total funds of commercial banks. Therefore, option B is incorrect. Option C is also incorrect since the purchase of securities by the Fed increases the total funds of commercial banks, rather than decreasing it. Option D is incorrect since only option A is correct.

Quiz 4: Functions of the Fed

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

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

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

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

Repurchase agreements are purchased by the Fed to

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

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

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?

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

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.

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

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

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

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

The is directly responsible for controlling money supply growth.

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