Deck 3: The Overseer: the Federal Reserve System

Question 1

The main purpose of the Federal Reserve Act was to

A)create a central bank that could act as a lender of last resort to commercial banks.
B)provide a means to finance government deficit spending.
C)abolish the National Banking System.
D)All of the above are correct.

Answer 1

A

Question 2

As a result of the Banking Acts of 1933 and 1935,

A)there was a change in the Federal Reserve's purposes and objectives.
B)the Federal Reserve System became a full-fledged central bank.
C)the powers of the Federal Reserve were broadened.
D)All of the above are correct.

Answer 2

D

Question 3

After the banking reforms of the Great Depression, one of the goals of the Federal Reserve was to regulate and supervise the operation of the financial system in order to

A)foster a smooth-running, efficient, competitive financial system.
B)create full employment.
C)lower interest rates.
D)All of the above are correct.

Answer 3

A

Question 4

The core of the Federal Reserve System is

A)the Board of Governors located in Washington, DC.
B)the twelve Reserve Banks in total.
C)the Federal Advisory Committee.
D)All of the above are correct.

Question 5

Who appoints the chairperson of the Federal Reserve Board?

A)Congress with the advice and approval of the Federal Reserve Board
B)The Senate with the advice and approval of the President
C)The President with the advice and approval of the Senate
D)The Federal Reserve Board Members

Question 6

The reason the original Federal Reserve Act created 12 Reserve Banks and provided for the election of directors was to

A)centralize policy making authority.
B)decentralize policy making authority.
C)negate the influence of the Secretary of the Treasury.
D)consolidate authority.

Question 7

The members of the Board of Governors of the Fed are appointed by which of the following?

A)The President, with the advice and consent of the U.S. Senate
B)The President, with the advice and consent of Congress
C)The U.S. Senate, with the advice and consent of Congress
D)The U.S. Senate, with the advice and consent of the President's Economic Advisory Board

Question 8

The "Policy Directive"

A)is the set of instructions regarding open market operations issued to the New York Fed.
B)states the policy consensus of the FOMC.
C)sets forth the operating instructions regarding the conduct of monetary policy.
D)All of the above are correct.

Question 9

The Federal Open Market Committee (FOMC)

A)formulates monetary policy and oversees its implementation.
B)is the principal policy-making body of the Federal Reserve.
C)consists of 12 members.
D)All of the above are correct.

Question 10

Which of the Presidents of 12 Federal Reserve Banks is a permanent voting member of the FOMC?

A)the president of the Washington, DC Fed
B)the president of the New York Fed
C)the president of the Chicago Fed
D)None of the Presidents is a permanent voting member of the FOMC.

Question 11

The FOMC meets eight times a year to

A)determine the stance of monetary policy and to issue a policy directive regarding the conduct of monetary policy.
B)publish an economic report of the state of the nation.
C)set forth the operating structures to the Federal Reserve Bank of Washington, DC regarding the content of monetary policy.
D)All of the above are correct.

Question 12

Monetary policy has two objectives:

A)to ensure that sufficient money and credit are available to meet the needs of the economy and to minimize fluctuations-recessions and inflationary booms-around a long-term trend.
B)to ensure full employment and low interest rates.
C)to reduce the costs of government deficit spending and keep interest rates low.
D)to monetize all government spending and keep unemployment below 6 percent.

Question 13

Supervision and regulation of the financial system

A)defines which activities are permissible and which are not.
B)requires submitting bank merger applications to the Fed for approval.
C)ensures that consumers are treated fairly when they engage in financial activities.
D)All of the above are correct.

Question 14

How does the Fed seek to preserve public confidence when bank lending has been either fraudulent or misguided and the bank is in danger of failing?

A)find a merger partner for the weak institution
B)lend funds to the weak institution to give it time to work out its problems
C)remove the management of the weak institution
D)All of the above are correct.

Question 15

Which of the following does the Federal Reserve System NOT do for the U.S. Treasury?

A)maintain the Treasury's transactions account
B)clears Treasury checks
C)ensures that interest rates on government securities are kept below 5 percent
D)acts as a fiscal agent of the government

Question 16

Which of the following does the Federal Reserve System do for the U.S. Treasury?

A)maintain the Treasury's transactions account
B)clears Treasury checks
C)acts as a fiscal agent of the government
D)All of the above are correct.

Question 17

The buying and selling of government securities by the Fed to change the reserves of depository institutions is called

A)the payments mechanism.
B)changing the required reserve ratio.
C)open market operations.
D)the lender of last resort.

Question 18

The part of the Federal Reserve System responsible for setting the required reserve ratio is the

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

Question 19

Because the Fed controls the amount of required reserve assets that depository institutions must hold, it also operates a lending facility called the

A)fair lending window.
B)discount window.
C)open market window.
D)stabilization window.

Question 20

In January 2003, a new policy was implemented by the Fed that established a primary credit rate for its lending facility. Today, this rate is often referred to as the

A)federal funds rate.
B)discount rate.
C)secondary rate.
D)tertiary rate.

Question 21

If the Fed wants to encourage bank lending, then it should ________ the required reserve ratio on checkable deposits.

A)lower
B)raise
C)maintain at a constant
D)the Fed cannot change the required reserve ratio

Question 22

If the Fed wants to discourage bank lending, then it should ________ the required reserve ratio on checkable deposits.

A)lower
B)raise
C)maintain at a constant
D)the Fed cannot change the required reserve ratio

Question 23

Funds that were "swept" out of checkable deposits and into money market deposit accounts (MMDAs)

A)have caused the amount of required reserves held by banks and other depository institutions to increase dramatically in recent years.
B)allow depository institutions to shift customers' funds out of accounts that are subject to reserve requirements and into highly liquid accounts that are not.
C)have made it easier for the Fed to implement monetary policy.
D)All of the above are correct.

Question 24

The key player in shaping the FOMC policy is the

A)Secretary of the Treasury.
B)Chair of the Board of Governors of the Federal System.
C)President of the United States.
D)Chair of the FDIC.

Question 25

Which of the following agencies is not under the direct control of the Executive Branch of government?

A)Treasury Department
B)Federal Reserve System
C)Council of Economic Advisors
D)Office of Management and Budget

Question 26

The Fed's exemption from many requirements of the Freedom of Information Act of 1966 results in

A)public access to all minutes of the Fed's board meetings.
B)unlimited public access to attend the Fed's board meetings.
C)secret meetings to formulate policies.
D)None of the above

Question 27

The Fed pays its own way from the interest income it earns on

A)loans to third world countries.
B)loans to foreign central banks.
C)holdings of government securities and loans to depository institutions.
D)All of the above are correct.

Question 28

Those who support Fed independence do so mainly on the grounds that anything less than full independence will

A)violate the Constitution.
B)violate the National Banking Act.
C)inject politics into monetary policy operations.
D)All of the above are correct.

Question 29

Which of the following is true?

A)Attempts to become more open have been successfully resisted by the Fed.
B)The Fed has become considerably more open in recent years.
C)All FOMC meetings to set monetary policy are now public.
D)All of the above are false.

Question 30

Which of the following is false?

A)The European Union consists of 27 European countries.
B)All the countries of the European Union have adopted a single currency called the euro.
C)The Eurosystem is made up of the European Central Bank and the central banks of the countries in the currency union.
D)The Eurosystem formulates and implements monetary policy for the eurozone.

Question 31

By law, the primary objective of the Eurosystem is to

A)maintain price stability in the Euro zone.
B)maintain full employment in the Euro zone.
C)maintain parity with the U.S. dollar.
D)All of the above are correct.

Question 32

The __________ are the seven members of the Fed appointed by the president and approved by the senate to serve fourteen-year terms; they make up the core of the Fed and are located in Washington, D. C.

A)Board of Governors
B)Federal Reserve Bank Presidents
C)U.S. Treasury Department
D)Federal Open Market Committee (FOMC)

Question 33

The __________ is/are the principal policy-making body within the Federal Reserve System that determines monetary policy.

A)Board of Governors
B)Federal Reserve Banks
C)U.S. Treasury Department
D)Federal Open Market Committee (FOMC)

Question 34

The __________ is the rate depository institutions are charged to borrow reserves from the Fed.

A)fed funds rate
B)discount rate
C)required reserve ratio
D)None of the above

Question 35

The Fed is engaging in __________ when it lends to commercial banks during emergencies to avoid insolvency.

A)monetary policy
B)lender of last resort actions
C)open market operations
D)policy directives

Question 36

The Fed is engaging in __________ when it attempts to stabilize the economy and to ensure sufficient money and credit for an expanding economy.

A)monetary policy
B)lender of last resort actions
C)open market operations
D)policy directives

Question 37

The ways in which funds are transferred to make payments is called the

A)monetary policy.
B)lender of last resort actions.
C)open market operations.
D)payment mechanism.

Question 38

The part of the Fed chiefly responsible for monetary policy is the

A)Board of Governors.
B)Federal Open Market Committee.
C)Federal Reserve Banks.
D)Both a and c

Question 39

The part(s) of the Fed responsible for determining reserve requirements, supervising and regulating member banks and bank holding companies, establishing and administering consumer protection regulations, and overseeing the Federal Reserve Banks is/are the

A)Board of Governors.
B)Federal Open Market Committee.
C)Federal Reserve Banks.
D)Both a and c

Question 40

The Federal Reserve System was created by the

A)Senate.
B)Board of Governors.
C)United States President.
D)Congress.

Question 41

The Federal Reserve System was created in

A) Senate.
B) Board of Governors.
C) United States President.
D) Congress.

Question 42

Providing elastic currency can be understood as being which of the following?

A)FDIC insured
B)a lender of last resort
C)a sound lender
D)economically stable

Question 43

In what years were the Banking Reform Acts passed?

A)1921 and 1927
B)1913 and 1936
C)1933 and 1935
D)1982 and 1984

Question 44

The underlying need for a stronger central bank became apparent during the

A)Presidential Election of 2008.
B)Great Depression of the 1930s.
C)1933 Gold Crisis.
D)World War II.

Question 45

By regulating and supervising the operation of the financial system, the Fed is attempting to

A)promote a healthy economy.
B)foster an efficient and competitive financial system.
C)support a stable economy.
D)All of the above are correct

Question 46

The Board of Governors of the Federal Reserve System is located in which city?

A)San Francisco
B)Miami
C)Fort Knox
D)Washington, D. C.

Question 47

The Board of Governors of the Federal Reserve System has

A)17 members.
B)6 members.
C)7 members.
D)5 members.

Question 48

The Fed's main policy tool is

A)changing the discount rate.
B)changing the required reserve ratio.
C)altering its lender of last resort actions.
D)engaging in open market operations.

Question 49

The full term of a member of the Board of Governors of the Fed is

A)2 years.
B)7 years.
C)11 years.
D)14 years.

Question 50

The terms of Fed governors are arranged so that one term expires every

A)1 year.
B)2 years.
C)6 years.
D)7 years.

Question 51

The term of the chairperson of the Federal Reserve Board lasts

A)1 year.
B)3 years.
C)4 years.
D)7 years.

Question 52

The chairperson of the Federal Reserve Board is selected from the

A)Federal Reserve Board.
B)President's Economic Advisory Board.
C)U.S. Senate.
D)Federal Reserve Bank Presidents.

Question 53

Which of the following is false?

A)The Federal Reserve System was created in 1913.
B)The Fed is governed by the Board of Governors, whose seven members are appointed by the president to 14-year terms. The Board chair is appointed for a four-year term.
C)The FOMC is the major policy-making body and includes the seven Fed governors plus all of the Federal Reserve Bank presidents.
D)The president of the New York Federal Reserve Bank is a permanent member of the FOMC.

Question 54

In which of the following cities is the Federal Reserve Bank that carries out open market operations located?

A)New York
B)Chicago
C)San Francisco
D)Washington

Question 55

The reason for the creation of 12 Reserve banks and the election of directors to each was to

A)centralize banking power authority.
B)strengthen the power of the Fed.
C)decentralize policy-making authority.
D)None of the above

Question 56

The FOMC is

A)the principal policy-making body within the Federal Reserve System.
B)the principal Fed operations membership committee.
C)the principal ongoing investigative organization within the Federal Reserve System.
D)All of the above are correct.

Question 57

The FOMC

A)investigates fraudulent banking practices.
B)determines the prime interest rate.
C)formulates monetary policy and oversees its implementation.
D)all of the above

Question 58

How many members make up the FOMC?

A)10
B)2
C)7
D)12

Question 59

How many votes does the Federal Reserve Board hold on the FOMC?

A)2
B)7
C)11
D)14

Question 60

The Fed Open Market Committee (FOMC) meets in

A)closed meetings in Washington five times a year.
B)closed meetings in Washington eight times a year.
C)closed meetings in New York every month.
D)open meetings in New York six times a year.

Question 61

All of the following are functions of the Fed except to:

A)supervise and regulate the financial system
B)serve as a fiscal agent for the government.
C)conduct monetary policy.
D)collect tax payments for the federal government.

Question 62

The center of the financial system is in which of these cities?

A)Chicago
B)New York
C)Washington,D. C.
D)San Francisco

Question 63

Which of the following is false?

A)The discount rate is the interest rate the Fed charges depository institutions for borrowing reserves from their district Reserve Bank.
B)Institutions are encouraged to borrow reserves frequently from the Fed.
C)To preserve the public's confidence in the safety and soundness of the financial system, the Fed will lend for an extended period to an institution experiencing severe difficulties.
D)The Fed is the lender of last resort.

Question 64

Since its onset, the Fed's powers and responsibilities have

A)decreased.
B)remained the same.
C)increased.
D)increased since the 1978 decrease.

Question 65

Over time, the Fed's policy-making authority has

A)become more decentralized through the twelve Federal Reserve Banks.
B)become less powerful because of the increasingly complexity of the economy.
C)remained about the same in terms of power and decentralization.
D)become more concentrated in Washington D. C.

Question 66

Check clearing falls under which of following Fed functions?

A)Supervising and regulating the financial system
B)Serving as a fiscal agent of the government
C)Maintaining and developing the payments system
D)Conducting monetary policy

Question 67

Open market operations fall under which of the following Fed functions?

A)supervising and regulating the financial system
B)serving as a fiscal agent of the government
C)facilitating the payments system
D)conducting monetary policy

Question 68

Retail sweep accounts

A)have caused the amount of required reserves held by banks and other depository institutions to increase dramatically in recent years.
B)are a financial innovation that allows depository institutions to shift customers' funds out of checkable accounts that are subject to reserve requirements and into highly liquid money market deposit accounts (MMDAs) that are not.
C)have made it easier for the Fed to implement monetary policy.
D)All of the above.

Question 69

Of the following, which is an objective of the nation's monetary policy?

A)Ensuring that sufficient money is available for economic expansion.
B)maximizing long-run economic growth with little or no inflation.
C)minimizing short-run fluctuations that result in recessions or inflationary booms.
D)All of the above are correct.

Question 70

The Fed's supervisory and regulatory activities are aimed at insuring the safety and soundness of which of these?

A)Wall Street
B)the bond market
C)depository institutions
D)the foreign exchange market

Question 71

The purpose of the Fed's supervisory activities is

A)to promote a strong dollar.
B)to encourage foreign trade.
C)to facilitate the borrowing of deficit funds.
D)to ensure fair and efficient delivery of financial services to the customers of depository institutions.

Question 72

The regulations imposed by the Fed include which of these?

A)the definition of permissible activities for banks
B)approval of branch and merger applications for national banks
C)fair treatment of consumers in financial transactions
D)All of the above are correct.

Question 73

Which of the following is false?

A)The Fed furnishes banking services to the government in a manner similar to the way private banks furnish banking services to their customers.
B)The Fed clears Treasury checks, issues and redeems government securities, and provides other financial services.
C)The Fed acts as the fiscal agent of the government in financial transactions with foreign governments and foreign central banks.
D)The Fed acts as a super-central bank for other central banks around the world.

Question 74

The Community Reinvestment Act seeks

A)to increase the availability of credit to economically disadvantaged areas.
B)to provide credit to senior citizens.
C)to ensure nondiscriminatory lending practices.
D)Both a and c

Question 75

The most prominent Fed activity in the payments mechanism is the

A)provision of low-cost loans to a bank in serious difficulty.
B)clearing of checks.
C)regulation of ATM fees.
D)conducting of monetary policy.

Question 76

The Treasury's "transaction account" balance is

A)considered near cash.
B)considered money.
C)not considered money.
D)included in the monetary aggregate.

Question 77

As chief banker for the U.S. Government, the Fed

A)clears Treasury checks.
B)decides fiscal policy.
C)decides government spending.
D)All of the above are correct.

Question 78

What is the most important monetary policy tool at the Fed's disposal?

A)setting the discount rate
B)setting the prime rate
C)open market operations
D)setting the required reserve ratio

Question 79

Open market operations are executed by the

A)Board of Governors.
B)Federal Reserve Bank of New York.
C)FDIC.
D)Federal Advisory Council.

Question 80

Open market operations involve

A)the buying and selling of U.S. common stocks by the Fed.
B)the buying and selling of U.S. mutual funds by the Fed.
C)the buying and selling of U.S. government securities by the Fed.
D)All of the above