Deck 5: The Federal Reserve

Question 1

​Commercial banks may buy and sell reserves in the federal funds market.

Answer 1

True

Question 2

​When the Federal Reserve buys securities, the reserves of banks are increased.

Answer 2

True

Question 3

​When corporations retire (pay off) loans from commercial banks, excess reserves are increased.

Answer 3

True

Question 4

The presidents of the District Banks elect the Board of Governors of the Federal Reserve.​

Question 5

​The Federal Open Market Committee (FOMC) has twelve members that include the Board of Governors.

Question 6

​When the Federal Reserve sells securities that are purchased by individuals, the money supply is increased.

Question 7

​The federal funds rate is the interest rate the Federal Reserve charges banks when they borrow reserves.

Question 8

​Reserve requirements are infrequently changed to affect commercial bank lending.

Question 9

The power to create money is given by the Constitution to the Federal Reserve.​

Question 10

​If the Treasury borrows from the Federal Reserve, the lending capacity of banks is reduced.

Question 11

​Deflation is a period of declining prices.

Question 12

​If the Treasury issues new bonds that are purchased by the general public, the money supply is reduced if the Treasury deposits the funds in the Federal Reserve.

Question 13

​Only large commercial banks are subject to the regulation of the Federal Reserve.

Question 14

​Open market operations is a more flexible tool of monetary policy than changing the reserve requirements.

Question 15

​When the general public uses money in checking accounts to purchase stock issued by corporations, the required reserves of banks are reduced.

Question 16

​During a period of recession, the Fed sells securities.

Question 17

​The President of the United States appoints the Board of Governors of the Federal Reserve.

Question 18

​Open market operations is a more flexible tool of monetary policy than the discount rate.

Question 19

​When commercial banks grant loans to the public, their total reserves are reduced.

Question 20

The Consumer Price Index (CPI) is a measure of inflation.​

Question 21

The purpose of the Federal Reserve is to​

A) ​finance government operations
B) ​protect investors from bank failures
C) ​protect deposits from bank failures
D) ​control the supply of money and credit

Question 22

​By lowering the discount rate, the Federal Reserve

A) ​discourages commercial banks from lending
B) ​encourages commercial banks to borrow reserves
C) ​discourages depositors from withdrawing funds
D) ​contracts the money supply

Question 23

When a commercial bank receives a cash deposit,​
1) its required reserves increase
2) its required reserves decrease
3) its total reserves increase

A)​1 and 3
B)​1 and 4
C)​2 and 3
D)​2 and 4

Question 24

When commercial banks grant loans,​

A) ​the money supply is reduced
B) ​the money supply is increased
C) ​total reserves increase
D) ​total reserves decrease

Question 25

​The target federal funds rate is set by the supply and demand for commercial bank reserves.

Question 26

Commercial banks lend excess reserves for one day in the​

A) ​stock market
B) ​federal funds market
C) ​reserves market
D) ​over‑the‑counter market

Question 27

The Federal Reserve​

A) ​is part of the U.S. Treasury
B) ​establishes the target federal funds rate
C) ​is the nation's largest commercial bank
D) ​lends funds to corporations

Question 28

During a period of recession, a federal government surplus should retire debt owed​

A) ​the Federal Reserve
B) ​commercial banks
C) ​the general public
D) ​the Federal Deposit Insurance Corporation

Question 29

The members of the Board of Governors are​

A) ​elected by the member banks
B) ​appointed by the Senate
C) ​appointed by the President of the United States
D) ​elected by the Federal Open Market Committee

Question 30

The Federal Reserve increases reserves by​

A) ​selling securities
B) ​buying securities
C) ​raising reserve requirements
D) ​raising the discount rate

Question 31

Anticipation of inflation discourages​
1) saving
2) borrowing
3) lending
4) purchasing goods

A)​1 and 2
B)​1 and 3
C)​2 and 3
D)​3 and 4

Question 32

Excess reserves are affected by​
1) reserve requirements
2) the repayment of existing bank loans
3) cash withdrawals​

A)​1 and 2
B)​1 and 3
C)​2 and 3
D)​1, 2, and 3

Question 33

The Federal Reserve may contract the money supply by​
1) selling securities
2) buying securities
3) raising reserve requirements
4) lowering reserve requirements

A)1 and 3​
B)​1 and 4
C)​2 and 3
D)​2 and 4

Question 34

If deposits are withdrawn from a commercial bank, it may obtain reserves by​

A) ​acquiring an asset
B) ​borrowing in the federal funds market
C) ​lending funds in the federal funds market
D) ​liquidating a liability

Question 35

If the federal government runs a deficit and borrows from commercial banks,​
1) total deposits are not affected
2) total deposits are increased
3) excess reserves are reduced
4) excess reserves are decreased

A)​1 and 3
B)​1 and 4
C)​2 and 3
D)​2 and 4

Question 36

​The Fed uses the target federal funds rate as a primary tool of monetary policy compared to reserve requirements.

Question 37

Recession is a period of falling prices.​

Question 38

Withdrawing cash from a checking account does not decrease​

A) ​the money supply
B) ​demand deposits
C) ​total reserves
D) ​excess reserves

Question 39

If the federal government runs a surplus,​

A) ​expenditures exceed taxes
B) ​receipts exceed disbursements
C) ​debt must be issued
D) ​the Federal Reserve buys bonds

Question 40

The structure of the Federal Reserve includes
1) all commercial banks
2) the twelve district banks
3) the Board of Governors​

A)​1 and 2
B)​1 and 3
C)​2 and 3
D)​1, 2, and 3

Question 41

If the federal government runs a deficit,​

A) ​taxes exceed expenditures
B) ​expenditures exceed taxes
C) ​receipts exceed taxes
D) ​taxes exceed revenues

Question 42

Anticipation of inflation encourages

A) ​lending
B) ​borrowing
C) ​retiring debt
D) ​saving

Question 43

The Board of Governors​

A) ​manages the nation's stock of gold
B) ​has the substantive control over the money supply
C) ​controls the U. S. Treasury
D) ​is appointed by the U. S. Treasurer

Question 44

If commercial banks grant loans,​

A) ​the money supply is increased
B) ​total reserves are increased
C) ​excess reserves are increased
D) ​the money supply is reduced

Question 45

During a period of recession the Federal Reserve​
1) increases the targe federal funds rate
2) buys government securities
3) sells government securities
4) lowers the target federal funds are

A)​1 and 2
B)​1 and 3
C)​2 and 4
D)​3 and 4

Question 46

Commercial banks may borrow reserves from each other in the​

A) ​reserves market
B) ​stock market
C) ​bank market
D) ​federal funds market

Question 47

Recession is a period of​

A) ​declining prices
B) ​declining employment
C) ​declining unemployment
D) ​rising interest rates

Question 48

The tools of monetary policy include​

A) ​open market operations
B) ​the purchase of corporate stock
C) ​the federal government deficit
D) ​taxation

Question 49

​If the reserve requirement for demand deposits is 10 percent,
what is the maximum change in the money supply that the banking system can create if
a. the Federal Reserve puts $1,000,000 of new reserves in the banking system
b. $1,000,000 in cash is deposited in checking accounts
c. IBM borrows $1,000,000 from an insurance company?

Question 50

By selling securities to the general public, the FED​

A) ​reduces the money supply
B) ​raises commercial banks' deposits
C) ​increases the money supply
D) ​increases banks' excess reserves