Question 1

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.

Accepted Answer

The Fed's purchases of long-term Treasury securities were aimed at reducing long-term interest rates. The objective was to provide additional monetary stimulus by lowering borrowing costs for households and businesses, as well as encouraging more spending and investment.

Question 2

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

Accepted Answer

The answer of To increase the money supply growth, the...

Question 3

____ 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

Accepted Answer

M2 includes M1 (currency held by the public and checking deposits) plus savings accounts, small time deposits, and money market deposit accounts.

Question 4

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

Accepted Answer

When the Fed buys Treasury bills, it increases demand for them, which pushes their prices up. Since the yield (interest rate) of a bond moves inversely to its price, yields go down.

Question 5

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.

Accepted Answer

Quantitative easing refers to the Fed's purchase of various types of debt securities, including risky debt securities, to inject more money into the economy and stimulate economic growth. It is not limited to the purchase of short-term Treasury securities or commodities like gold.

Question 6

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

Accepted Answer

The Community Advisory Council meets with the Board of Governors twice a year to provide their views on the economic circumstances and financial services needs of consumers and communities. The Consumer Financial Protection Bureau, Federal Advisory Council, and Federal Trade Commission do not have this specific function.

Question 7

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

Accepted Answer

When the Fed purchases mortgage-backed securities, it injects money into the housing market by increasing the demand for these securities, which in turn leads to lower mortgage rates and increased home purchases.

Question 8

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

Accepted Answer

The Federal Reserve primarily uses open market operations, not the adjustment of the primary credit lending rate, to control the money supply.

Question 9

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

Accepted Answer

The Community Depository Institutions Advisory Council (CDIAC) offers views and advice to the Federal Reserve Board on issues related to credit unions, community banks, and thrift institutions. The other options listed do not specifically relate to credit unions. The Community Advisory Council advises on consumer issues, the Federal Advisory Council offers advice on general economic and banking issues, and the Federal Open Market Committee sets monetary policy.

Question 10

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

Accepted Answer

When the Fed sells securities, it takes cash out of the banking system, decreasing the total funds of commercial banks. This action reduces the reserves of banks, making it more difficult for them to lend money and decreasing the money supply, which is known as a tightening of money supply growth. Therefore, the correct option is D, which states that the total funds of commercial banks decrease, and it is referred to as a tightening of money supply growth.

Question 11

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

Accepted Answer

The Federal Advisory Council is the committee that advises the Fed on economic and banking related issues. The Community Advisory Council and Community Depository Institutions Advisory Council focus on community development and only provide recommendations on matters related to their specific area. Therefore, choice C is the best answer.

Question 12

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.

Accepted Answer

The Federal Reserve Act of 1913 established 12 districts, not 14, each with a Federal Reserve Bank.

Question 13

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

Accepted Answer

When the Fed purchases long-term Treasury securities, it increases demand for these securities, which lowers their yield (i.e. interest rate). Lower long-term interest rates can stimulate economic activity, such as increasing business investment and encouraging consumers to spend more. This can help to stimulate overall economic growth and employment. Conversely, when the Fed increases interest rates, it can slow down economic growth and help to control inflation. Therefore, the most likely reason for the Fed to initiate a program to purchase long-term Treasury securities is to reduce long-term interest rates.

Question 14

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

Accepted Answer

To increase the money supply, the Trading Desk would be instructed to buy government securities, not sell them. This is because when the Trading Desk buys government securities from banks, it pays for them with newly created reserves, which increases the amount of money in circulation. Selling government securities would have the opposite effect, reducing the amount of money in circulation.

Question 15

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

Accepted Answer

To increase the money supply, the Fed would typically decrease the reserve requirement ratio, which would allow banks to hold less money in reserves and lend out more to customers. Increasing the reserve requirement ratio would have the opposite effect, decreasing the amount of money banks could lend out and thus decreasing the money supply.

Question 16

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.

Accepted Answer

The primary goal of the Fed's program to purchase commercial paper was to increase the activity in the market for commercial paper and boost the confidence of investors in commercial paper. This was to address the liquidity crunch and to prevent disruption in the functioning of financial markets. The program provided a backstop for the commercial paper market, which helped to stabilize the market and encourage investor confidence.

Question 17

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

Accepted Answer

The Fed did not prevent depository institutions from obtaining funding through the discount window. In fact, during the credit crisis, the Fed encouraged institutions to use the discount window as a source of funding.

Quiz 4: Functions of the Fed

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

To increase the money supply growth, the Fed could

____ 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.

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.

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

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.

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

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

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

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.

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

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

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

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

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

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

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