Exam 2: The Federal Reserve and Its Powers

Assume the Fed pays $1000 for a government bond on the open market. With a 5% reserve requirement, what is the theoretical ultimate addition to the money supply, and why?

A decrease in Federal Reserve float decreases member bank reserves.

The "monetary base" comprises the Fed's most important assets.

The Federal Reserve is this nation's first permanent central bank.

The seven members of the Board of Governors of the Federal Reserve System serve 14 year nonrenewable terms. Each Board member is appointed by the President and confirmed by the Senate.

The Federal Reserve System replaced the National Banking system.

An increase in the money supply does not affect the supply of loanable funds.

The Federal Reserve was created in 1933 as a result of the Great Depression.

A decrease in reserve requirements increases the total level of member bank reserves.

The monetary base comprises currency in circulation and checks not yet cleared.

The Fed's most commonly used tool is reserve requirements.

The current chair of the Federal Reserve is Ben Bernanke.

Currency is an asset of the Federal Reserve Banks.

All national banks must join the Federal Reserve System.

Explain why the Federal Reserve is less "independent" than it appears to be.

A major asset of the Federal Reserve is U.S. Treasury securities, and the major liability is currency outside banks.

Quantitative easing consists of the Fed buying bonds even when interest rates are low.

Deposits should expand when reserve requirements increase.

There are 12 Federal Reserve District banks today.

What is the relationship between central bank independence and inflation?