Question 1

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

The Federal Reserve System does have the power to set legal reserve requirements for member banks. In fact, it regularly adjusts the reserve requirement ratio as a way to influence the money supply and control inflation.

Question 2

The distinction between depository institutions and other financial institutions is that

Accepted Answer

The best choice is E because depository institutions are unique in that they receive funds through customer deposits, which they then use to make loans and other investments. Other financial institutions, such as investment banks and insurance companies, may also make loans and invest funds, but they do not necessarily rely on customer deposits as a source of funding. Options A, B, C, and D are all incorrect statements that do not accurately distinguish depository institutions from other financial institutions.

Question 3

The discount rate is the interest rate that

Accepted Answer

The discount rate is the rate at which banks and other depository institutions can borrow money from the Federal Reserve. Therefore, the best choice is D, which states that the discount rate is the interest rate that the Federal Reserve charges on loans to depository institutions.

Question 4

The Federal Reserve System was created

Accepted Answer

The Federal Reserve System was created in 1913 to serve as a central bank for the banking system, providing stability and regulating monetary policy.

Question 5

Which of the following is not a thrift institution?

Accepted Answer

Commercial banks are not considered thrift institutions because they do not focus primarily on accepting deposits and providing mortgages like savings and loan associations, mutual savings banks, and credit unions do.

Question 6

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 seen as a way to promote economic stability and prevent the concentration of financial power in a few institutions.

Question 7

Some financial institutions are classified as depository institutions based on

Accepted Answer

Depository institutions are financial institutions that take deposits and use them to make loans. They are classified as depository institutions based on the way they acquire funds, specifically through deposits from customers. Examples of depository institutions include commercial banks, savings and loans associations, and credit unions.

Question 8

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

Accepted Answer

The Federal Reserve System does not make loans to the public. Its main functions include holding deposits of member banks, clearing checks, making loans to member banks, serving as a bank to the Federal government, and conducting monetary policy to promote economic growth and stability.

Question 9

The interest rate charged by the Federal Reserve banks on loans to banking institutions is

Accepted Answer

The interest rate charged by the Federal Reserve banks on loans to banking institutions is known as the discount rate.

Question 10

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

Accepted Answer

The power to issue paper currency in the United States is primarily held by the Federal Reserve Banks. While their power is subject to certain limitations, it is generally considered to be broad and flexible. However, other entities such as national banks and certain state-chartered banks are also authorized to issue currency under certain circumstances.

Question 11

Which of the following is true of the discount rate?

Accepted Answer

The discount rate is set by the Federal Reserve and is the interest rate at which depository institutions (such as banks) can borrow funds from the Federal Reserve. It is also used as a tool for monetary policy, as changes to the discount rate can encourage or discourage borrowing and lending in the economy. Choices A, B, D, and E are not accurate descriptions of the discount rate.

Question 12

Federal Reserve notes are

Accepted Answer

Federal Reserve notes are fiat money, which means that their value is not backed by a physical commodity or precious metal, but rather by the government's legal tender laws and the trust and confidence in the issuing authority.

Question 13

Under the Federal Reserve System,

Accepted Answer

There are 12 Federal Reserve banks located throughout the United States, each serving a specific geographic region. They are located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.

Question 14

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

Accepted Answer

Federal Reserve banks do not hold deposits of households and firms; they primarily deal with member banks and the federal government.

Question 15

The law that established the Federal Reserve System is the

Accepted Answer

The Federal Reserve System was established by the Federal Reserve Act of 1913, which created a central banking system for the United States. The National Banking Act of 1863 and the Banking Act of 1933 did not establish the Federal Reserve System, although they did have significant impacts on banking regulation and the role of the government in the banking system. The FDIC and Comptroller of the Currency were also established by separate laws.

Question 16

When the Federal Reserve System was established,

Accepted Answer

When the Federal Reserve System was established, only federally chartered banks were required to join as members. State-chartered banks were not required to join, but they were permitted to do so if they met certain requirements. This changed in 1935 with the passage of the Banking Act, which made all banks eligible for membership in the Federal Reserve System.

Question 17

The Federal Reserve System was established

Accepted Answer

The Federal Reserve System was established in 1914 with the passage of the Federal Reserve Act, signed into law by President Woodrow Wilson.

Question 18

The members of the Board of Governors of the Fed are

Accepted Answer

Members of the Board of Governors of the Fed are selected by the President of the United States and are subject to approval by the Senate. They serve 14-year terms that are staggered, so not all members are replaced at the same time.

Question 19

The discount rate is

Accepted Answer

The discount rate is the interest rate charged by the Federal Reserve banks on loans to banking institutions.

Question 20

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

Accepted Answer

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

Quiz 14: Money and the Financial System