Question 1

Federal Reserve banks do all of the following except one. Which is the exception?
A)hold member banks' reserves on deposit
B)make loans to member banks
C)issue bank notes
D)serve as bankers to the federal government
E)hold deposits of households and firms

Accepted Answer

The answer of Federal Reserve banks do all of the...

Question 2

The members of the Board of Governors of the Fed are
A)elected by the member banks
B)chosen by the state governors
C)elected for seven year terms
D)all replaced after each Presidential election
E)selected by the President with the approval of the Senate

Accepted Answer

Members of the Board of Governors of the Fed are selected by the President with the approval of the Senate. They serve staggered 14-year terms to provide continuity and independence from political pressures.

Question 3

The Federal Reserve System was created
A)by the National Banking Act of 1863
B)initially as a bank for the banking system
C)with strong central powers and a mandate to control the money supply until it was restructured in the 1930s
D)initially with 12 districts, which were later restructured into the 15-district system we have today
E)with the power to regulate all banks

Accepted Answer

The answer of The Federal Reserve System was created
A)by the...

Question 4

All of the following are powers of the Federal Reserve System except
A)the ability to buy and sell government securities
B)the authority to issue Federal Reserve notes
C)the responsibility to clear checks
D)the obligation to make loans to the general public
E)the power to set the reserve requirement for banks

Accepted Answer

The Federal Reserve System does not have the obligation to make loans to the general public. Its primary functions include conducting monetary policy, supervising and regulating banks, maintaining the stability of the financial system, and providing financial services to the U.S. government. Making loans to the general public is the responsibility of commercial banks and other financial institutions.

Question 5

The discount rate is the interest rate that
A)banks charge on large loans
B)banks charge on loans to other banks
C)the Fed charges on loans to branches of the U.S. government
D)the Fed charges on loans to depository institutions
E)the Fed charges on loans to the public

Accepted Answer

The discount rate is the interest rate that the Federal Reserve charges on loans to depository institutions (such as banks) who need to borrow funds to meet reserve requirements or to maintain liquidity.

Question 6

When the Federal Reserve System was established,
A)all banks were required to become members
B)only federally chartered banks were allowed to join
C)only federally chartered banks were required to join
D)most banks joined even though none were required to join
E)membership was required for all banks in some states, but not in others

Accepted Answer

Only federally chartered banks were required to join the Federal Reserve System when it was established in 1913. State-chartered banks were allowed to join voluntarily, and many did so in order to gain access to the benefits of membership. However, membership did not become universal until the Banking Act of 1935, which required all banks in the United States to join the Federal Reserve System.

Question 7

The Fed's tools for regulating the money supply include
A)setting excess reserves
B)capping the federal funds rate
C)setting the discount rates
D)open-market operations
E)setting reserve requirements

Accepted Answer

The answer of The Fed's tools for regulating the money...

Question 8

The Federal Reserve System has the power to
A)raise or lower federal income tax rates
B)balance the federal government budget
C)increase or decrease federal government spending
D)compete with commercial banks in making loans to business firms
E)buy and sell federal government securities

Accepted Answer

The Federal Reserve System has the power to buy and sell federal government securities, which is known as open market operations. This power allows them to influence and manipulate the money supply and interest rates in the economy. The other choices (A, B, C, D) are not within the power of the Federal Reserve System.

Question 9

The reason that the Federal Reserve System has not been more effective is that it lacks the power to set legal reserve requirements for member banks.

Accepted Answer

This statement is false. The Federal Reserve System does have the power to set legal reserve requirements for member banks. In fact, setting reserve requirements is one tool the Fed uses to influence the money supply and promote monetary policy goals.

Question 10

The law that established the Federal Reserve System is the
A)Federal Reserve Act of 1913
B)National Banking Act of 1863
C)Banking Act of 1933
D)law that also established the FDIC
E)law that also established the Comptroller of the Currency

Accepted Answer

The Federal Reserve System was established by the Federal Reserve Act of 1913, which gave the Federal Reserve the power to regulate the country's monetary system by controlling the supply of money and credit.

Question 11

The twelve district banks of the Federal Reserve System were created to decentralize power and respond to the public's fears of the monopoly power of a single central bank such as the Bank of England or the Bank of Japan.

Accepted Answer

The twelve district banks of the Federal Reserve System were created to decentralize power and respond to the public's fears of the monopoly power of a single central bank. This was done in order to promote stability and transparency in the banking system.

Question 12

Which of the following is not a function of the Federal Reserve System?
A)holding deposits of member banks
B)clearing checks
C)making loans to member banks
D)serving as a bank to the Federal government
E)making loans to the public

Accepted Answer

The Federal Reserve System does not make loans to the public. Its main functions are to regulate monetary policy, supervise and regulate banks, stabilize financial markets, provide payment services to the government and banks, and maintain the stability of the financial system.

Question 13

Federal Reserve notes are
A)token money
B)commodity money
C)coins
D)backed by gold
E)fiat money

Accepted Answer

Federal Reserve notes are FIAT money, meaning they are not backed by a commodity or precious metal, but rather by the trust and faith in the government that issued them.

Question 14

The discount rate is
A)the interest rate charged by the Federal Reserve banks on loans to banking institutions
B)the interest rate banks charge each other for loans
C)the rate banks charge their best business customers
D)the rate of discount that banks use to determine the true mortgage rate
E)the fraction of deposits that banks hold as reserves

Accepted Answer

The discount rate is the interest rate charged by the Federal Reserve banks on loans to banking institutions. It is one of the tools used by the Federal Reserve to control the money supply and influence economic activity. By adjusting the discount rate, the Federal Reserve can encourage or discourage banks from borrowing, which in turn affects the amount of lending and the overall level of economic activity.

Question 15

In the United States, only Federal Reserve Banks can issue paper currency but their power to do so is virtually unlimited.

Accepted Answer

The Federal Reserve Banks have the authority to issue paper currency in the United States and their power to do so is virtually unlimited.

Question 16

The duties of the Federal Reserve include all of the following except one. Which is the exception?
A)regulating banks' reserve ratios
B)extending loans to banks on occasion
C)offering deposit insurance
D)controlling the monetary system of the U.S.
E)providing gold in exchange for Federal Reserve notes

Accepted Answer

The answer of The duties of the Federal Reserve include...

Question 17

Under the Federal Reserve System,
A)there is one Federal Reserve Bank, located in Washington, DC
B)there is one Federal Reserve Bank, whose location changes every 14 years
C)there is a Federal Reserve bank in each Congressional district
D)there is a Federal Reserve bank in each state
E)there are 12 Federal Reserve banks

Accepted Answer

There are 12 Federal Reserve banks located throughout the United States. Each Federal Reserve bank is responsible for a specific geographical region known as a Federal Reserve district.

Question 18

The discount rate is
A)the interest rate charged commercial banks for loans from a Federal Reserve bank
B)the rate or percent of deposits which banks are required to hold on reserve
C)the rate of interest paid on government bonds
D)the charge for cashing a check at a Federal Reserve bank
E)the interest rate charged to commercial banks for loans from other commercial banks

Accepted Answer

The discount rate is the interest rate charged by the Federal Reserve to commercial banks for loans from a Federal Reserve bank.

Question 19

The Federal Reserve System was established
A)by the U.S. Constitution
B)immediately after the Civil War
C)in 1914
D)during the Great Depression
E)immediately following World War II

Accepted Answer

The Federal Reserve System was established in 1914 by the Federal Reserve Act.

Question 20

Which of the following is true of the discount rate?
A)It is the interest rate commercial banks charge their most creditworthy customers.
B)It is the interest rate that thrift institutions charge for home mortgages.
C)It is the interest rate at which depository institutions can borrow from the Federal Reserve.
D)It is the interest rate set in the market for U.S. Treasury Bills.
E)It is the prime interest rate.

Accepted Answer

The discount rate is the interest rate at which depository institutions (such as banks) can borrow funds overnight from the Federal Reserve to meet their reserve requirements.

Quiz 15: Money and the Financial System

Federal Reserve banks do all of the following except one. Which is the exception?

The members of the Board of Governors of the Fed are

The Federal Reserve System was created

All of the following are powers of the Federal Reserve System except

The discount rate is the interest rate that

When the Federal Reserve System was established,

The Fed's tools for regulating the money supply include

The Federal Reserve System has the power to

The reason that the Federal Reserve System has not been more effective is that it lacks the power to set legal reserve requirements for member banks.

The law that established the Federal Reserve System is the

The twelve district banks of the Federal Reserve System were created to decentralize power and respond to the public's fears of the monopoly power of a single central bank such as the Bank of England or the Bank of Japan.

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

Federal Reserve notes are

The discount rate is

In the United States, only Federal Reserve Banks can issue paper currency but their power to do so is virtually unlimited.

The duties of the Federal Reserve include all of the following except one. Which is the exception?

Under the Federal Reserve System,

The discount rate is

The Federal Reserve System was established

Which of the following is true of the discount rate?