Deck 4: Federal Reserve System

Question 1

Although not provided for in the original organization of the Fed, open-market operations have become the most important and effective means of monetary control.

Answer 1

True

Question 2

The Federal Reserve System (Fed), the central bank of the United States, is responsible for setting monetary policy and regulating the banking system.
Answer T

Answer 2

True

Question 3

Although a central bank does not necessarily operate for profit, it generally deals directly with the public.

Answer 3

False

Question 4

A major weakness of the banking system under the National Banking Acts was that the money supply could not be easily expanded or contracted to meet changing seasonal needs and/or changes in economic activity.

Question 5

The seven members of the Federal Reserve Board of Governors are responsible for the establishment of monetary policy.

Question 6

State-chartered banks were permitted to join the system if they could show evidence of a satisfactory financial condition

Question 7

The 1980 Depository Institutions Deregulation and Monetary Control Act applies different reserve requirements to different banks based on their charters.

Question 8

The essential requirements of a well-functioning financial system include an efficient national payments system, a flexible money supply, and a lending/borrowing mechanism to help alleviate liquidity problems when they arise.

Question 9

The Government National Mortgage Association (Ginnie Mae) was created in 1968 as a public-private corporation.

Question 10

Because of the National Banking Act, the volume of national bank notes depends on the government bond market rather than the seasonal or cyclical needs of the nation for currency.

Question 11

The United States was one of the earliest major-industrial nations to adopt a permanent system of central banking.

Question 12

The Fed Board of Governors is composed of seven members who are appointed for a term of 12 years.

Question 13

About one-third of the nation's commercial banks are members of the Fed.

Question 14

The United States was one of the last major industrial nations to adopt a permanent system of central banking.

Question 15

The Federal Reserve act required that all national banks were to become members of the Fed.

Question 16

A central bank is a Federal government agency that facilitates operation of the financial system and regulates growth of the money supply.

Question 17

Open market operations involve the buying and selling of U.S. government securities.

Question 18

All commercial banks are members of the Fed.

Question 19

The federal government has historically played a very passive role in encouraging home ownership by supporting liquid markets for home mortgages.

Question 20

Fannie Mae was created to support the financial markets by purchasing home mortgages and automobile loans from banks so that the proceeds could be lent to other borrowers.

Question 21

Discount policy is still a major instrument of monetary policy.

Question 22

The money supply can be contracted by holding the amount of reserves constant but raising the reserve requirement.

Question 23

The three primary means that the Fed can use to exercise monetary policy includes closed market operations, stabilizing reserve requirements, and freeing the Federal discount rate.

Question 24

The Fed lending rate to depository institutions was consistently lower than the bank prime lending rate during the 1980-2009 period.

Question 25

When reserves are added to the banking system, depository institutions may expand their lending but are not forced to do so.

Question 26

If excess reserves are near zero, then a reduction of a bank's reserves will cause the system to loosen credit.

Question 27

By exercising its influence on the monetary system of the United States, the Fed performs a unique and important function: promoting economic stability.

Question 28

Open market operations are similar to discount operations in that they increase or decrease bank reserves at the initiative of the Fed.

Question 29

The ability to change reserve requirement is a powerful tool the Fed uses frequently.

Question 30

The primary responsibility of the Fed is to formulate monetary policy which involves regulating the growth of the supply of money, and therefore regulating its cost and availability.

Question 31

Total deposits can be contracted by holding the amount of reserves constant but raising the reserve requirement.

Question 32

The minimum amount of total reserves that depository institutions must hold are called fractional reserves.

Question 33

The closer to the required minimum the banking system maintains its reserves, the tighter the control the Fed has over the money creation process through its other instruments.

Question 34

The Federal Reserve Advisory Council provides advice and general information to the Secretary of the Treasury.

Question 35

The Fed discount rate is the interest rate that a bank must pay to borrow from its regional Federal Reserve Bank.

Question 36

Federal Reserve actions that stimulate or repress the level of prices or economic activity are called dynamic actions.

Question 37

The Fed prefers to change reserve requirements rather than to use open market operations.

Question 38

Banks with large transaction account balances hold the same percentage of reserves as all other banks.

Question 39

The Federal Open Market Committee directs open market operations by buying and selling government securities which are the primary instruments of exercising monetary policy.

Question 40

The Federal Reserve Act of 1913 provided that all national and state-chartered banks were to become members of the Fed.

Question 41

The Consumer Credit Protection Act requires that lenders clearly explain consumer credit costs and prohibited them from charging overly high-priced credit transactions.

Question 42

Due to its easy-of-use, quantitative easing is the primary Fed monetary policy.

Question 43

A large portion of Fed employees hold jobs directly related to the Fed's role as fiscal agent for the U.S. government.

Question 44

As of early 2019, nearly all the checks processed for collection by Federal Reserve Banks are still received as paper checks.

Question 45

Empirical evidence shows that in countries where central banks are relatively independent from their governments, there has been higher inflation and lower economic growth rates than in countries where central banks are closely tied to their governments.

Question 46

The Fed is no longer involved in processing checks.

Question 47

The federal funds rate is the interest rate on overnight loans from banks with excess reserves to the Fed.

Question 48

The Reserve Banks provide a wide range of important services to depository institutions and to the U.S. government.

Question 49

Federal Reserve actions that stimulate or repress the level of prices or economic activity are called defensive activities.

Question 50

The European Central Bank (ECB) conducts monetary policy for Britain.

Question 51

Banks are required by the Fed to hold reserves equal to a part of their deposits as part of the fractional reserve system of the U.S. banking system.

Question 52

U.S. central bank that sets monetary policy and regulates banking system.

A) Government National Mortgage Association
B) Federal National Mortgage Association
C) Federal Home Loan Mortgage Corporation
D) Federal Reserve System

Question 53

Quantitative easing is when the Fed engages in purchasing financial assets from banks and other financial institutions with newly created money, resulting in larger bank excess reserves and increased money supply and liquidity.

Question 54

The accommodative actions of the Fed includes buying treasury securities.

Question 55

All of the Chairmen of the Fed Board of Governors have been male.

Question 56

The central bank of Japan is called the First Bank of Japan.

Question 57

The Federal Reserve has no power to regulate the overseas activities of member banks and bank holding companies.

Question 58

Regulation Z requires that lenders clearly explain consumer credit costs and prohibited them from charging overly high-priced credit transactions.

Question 59

The most-used instrument of monetary policy is open-market operations.

Question 60

Dynamic actions are Fed activities that off set unexpected monetary developments and contribute to the smooth, everyday functioning of the economy.

Question 61

The chairman of the Federal Reserve System

A) is appointed by the Secretary of the Treasury.
B) serves a life term.
C) is the president of the New York Federal Reserve Bank.
D) is appointed by the President of the United States.

Question 62

Also known as Fannie Mae.

A) Government National Mortgage Association
B) Federal National Mortgage Association
C) Federal Home Loan Mortgage Corporation
D) Federal Reserve System

Question 63

Under the Federal Reserve Act of 1913, the number of Federal Reserve districts established is

A) 8
B) 10
C) 12
D) 25

Question 64

The United States created its system of central banking

A) earlier than such banks were established in other industrial nations.
B) later than such banks were established in other industrial nations.
C) to facilitate branch banking.
D) to facilitate international exchange operations.

Question 65

Formed to support mortgage markets by purchasing and holding mortgage loans,

A) Government National Mortgage Association
B) Federal National Mortgage Association
C) Federal Home Loan Mortgage Corporation
D) Federal Reserve System

Question 66

Under the authority of the Federal Reserve Act of 1913

A) all national and state-chartered banks must become members of the Fed.
B) only national banks were permitted to become members of the Fed.
C) state-chartered banks were permitted to withdraw from membership with the Fed.
D) a system of deposit insurance was created.

Question 67

Before the Federal Reserve System was created, a large part of the reserves of commercial banks was

A) in the form of state and federal government bonds.
B) deposited with the United States Treasury.
C) held as deposits with large city banks.
D) held as cash in their vaults.

Question 68

Created to issue its own debt securities to obtain funds that are invested in mortgages made to low to moderate income home purchasers

A) Government National Mortgage Association
B) Federal National Mortgage Association
C) Federal Home Loan Mortgage Corporation
D) Federal Reserve System

Question 69

As of 2019, the Chairman of the Federal Reserve is ________________________.

A) Jerome Powell
B) Alan Greenspan
C) Ben Bernanke
D) Janet Yellen

Question 70

As of 2019, there have been how many Chairmen of the Federal Reserve?

A) 14
B) 15
C) 16
D) 17

Question 71

The seven-member board of the Federal Reserve that sets monetary policy is called

A) the Federal Reserve Open Market Committee.
B) the Federal Reserve Board of Governors.
C) the Federal Reserve Advisory Committee.
D) the Federal Market Advisory Committee.

Question 72

One of the major weaknesses of the banking system before the Federal Reserve System was set up was

A) the arrangement for holding reserves.
B) the lack of a deposit insurance system.
C) a lack of currency and coin.
D) an inadequate supply of government bonds.

Question 73

When the Federal Reserve System was created, it was thought that its most important influence over monetary conditions would be

A) lending to banks to bolster their reserve positions.
B) quantitative easing.
C) the issuance of Federal Reserve notes.
D) the changing of reserve requirements.

Question 74

The National Banking Acts of 1863 and 1864 provided that

A) national banks could issue their own notes only against U.S. government bonds the banks held on deposit with the Treasury.
B) national banks could issue their own notes only against cash held in their vaults.
C) national banks could issue their own notes only against U.S. government bonds the banks held on deposit with the Federal Reserve Bank.
D) none of the above.

Question 75

Three essential needs of a well-operating financial system include all of the following except

A) an efficient national payments system.
B) an elastic or flexible money supply.
C) a bank insurance system.
D) a lending/borrowing mechanism.

Question 76

The National Banking Acts of 1863 and 1864 were

A) totally eliminated under the Federal Reserve Act of 1913.
B) were modified to permit greater flexibility of operations under the Federal Reserve Act of 1913.
C) were unaffected by the Federal Reserve Act of 1913.
D) found unconstitutional by the Supreme Court.

Question 77

Also known as Gennie Mae.

A) Government National Mortgage Association
B) Federal National Mortgage Association
C) Federal Home Loan Mortgage Corporation
D) Federal Reserve System

Question 78

Also known as the Fed.

A) Government National Mortgage Association
B) Federal National Mortgage Association
C) Federal Home Loan Mortgage Corporation
D) Federal Reserve System

Question 79

Under the authority of the Federal Reserve Act of 1913

A) member banks were required to purchase capital stock in the Federal Reserve Banks of their district.
B) member banks may not borrow from the Fed.
C) a formal open-market committee arrangement was established.
D) national banks were permitted to become members of the Fed if they could show evidence of satisfactory financial condition.

Question 80

Created to support the financial markets by purchasing home mortgages from banks so that the proceeds could be lent to other borrowers,

A) Government National Mortgage Association
B) Federal National Mortgage Association
C) Federal Home Loan Mortgage Corporation
D) Federal Reserve System