Deck 4: Federal Reserve System

Question 1

The Fed lending rate to depository institutions was consistently lower than the bank prime lending rate during the 1977-1994 period.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

The National Banking Act provides that national banks can issue their own notes only against U.S.government bonds that the banks held on deposit with large city banks.

Question 6

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 7

The only bank asset that can be counted as reserve is deposits with the Reserve Banks.

Question 8

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 9

In addition to the 12 Reserve Banks,25 branch banks have been established.

Question 10

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

Question 11

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

Question 12

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

Question 13

The Reserve Banks are private institutions owned by many member banks of the Fed.

Question 14

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

Question 15

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

Question 16

The Federal Reserve System replaced the system that existed under the National Banking Act.

Question 17

All commercial banks are members of the Fed.

Question 18

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

Question 19

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 20

A central bank is required to hold reserves,and it has stockholders and a board of directors.

Question 21

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

Question 22

The Federated Requirement System (Fed)is the central bank of the United States and is responsible for setting monetary policy and regulating the banking system.

Question 23

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

Question 24

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

Question 25

Paul Volcker was chairman of the Fed prior to the appointment of Alan Greenspan.

Question 26

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

Question 27

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

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

Member banks of the Federal Reserve System may not borrow from the Fed.

Question 30

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

Question 31

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 32

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 33

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 34

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

Question 35

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

Question 36

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

Question 37

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.

Question 38

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

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

Question 41

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

Question 42

The members of the board of directors of each Federal Reserve bank are:

A)appointed by the Board of Governors of the Federal Reserve System
B)elected by the member banks
C)chosen by the Board of Governors and by the member banks
D)appointed by the President of the United States with the advice and consent of the Senate

Question 43

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 44

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 45

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

Question 46

Since the late 1970s,the Federal Discount Rate has generally exceeded the Prime Interest Rate by a few percentage points.

Question 47

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 48

The members of the Fed Board of Governors are:

A)elected by the member banks
B)appointed by the President of the United States with the advice and consent of the Senate
C)appointed by the Secretary of the Treasury
D)appointed by each of the Federal Reserve banks
E)none of the above

Question 49

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

Question 50

The Fed would be practicing contractionary monetary policy if,through open market operations,it is a net seller of government securities.

Question 51

Each member of the Fed Board of Governors is appointed for a term of:

A)8 years
B)12 years
C)14 years
D)none of the above

Question 52

The primary function of the Federal Reserve System is to:

A)issue currency to member banks
B)regulate the growth of the money supply
C)serve as a fiscal agent for the U.S.government
D)regulate and conduct bank examinations

Question 53

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

Question 54

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 55

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 56

Since the late 1970s,the Federal Discount Rate has generally been below the Prime Interest Rate by a few percentage points.

Question 57

Federal Reserve actions that meet the credit needs of individuals and institutions,clearing checks,and supporting depository institutions are called accommodative activities.

Question 58

The National Banking Act 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 59

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 60

The Fed would be practicing contractionary monetary policy if it caused a decrease in market interest rates.

Question 61

Open market operations:

A)are used infrequently
B)are a prime source of income for the U.S.economy
C)are used by the Fed to alter bank reserves
D)none of the above

Question 62

Member banks of the Federal Reserve System:

A)must maintain all reserves with their Federal Reserve Bank
B)may include deposits held at large city banks as legal reserves
C)maintain levels of reserves based on the size of the city in which they are located
D)are permitted to count vault cash as part of their reserves

Question 63

The principal examining activity of the Federal Reserve System is directed to:

A)all state-chartered banks
B)state-chartered member banks
C)all national banks
D)foreign banks operating in the United States

Question 64

The Federal Open Market Committee:

A)is comprised of members of the Federal Reserve board and representatives of all Federal Reserve Banks
B)came into being at the time the Federal Reserve System was created
C)is made up of the presidents of the 12 Federal Reserve Banks
D)was created under a provision of the Banking Act of 1935

Question 65

A central bank does not:

A)deal directly with the public
B)necessarily operate for a profit
C)have stockholders because it is a non-profit organization
D)hold reserve requirements

Question 66

The Federal Reserve System exercises its most direct control of the money supply:

A)by the issuance of Federal Reserve notes
B)through reserve requirements
C)by setting the discount rates on loans to depository institutions
D)through open market operations

Question 67

The Federal Open Market Committee:

A)typically buys and sells long-term corporate bonds
B)is the most powerful and flexible monetary policy tool of the Fed
C)works out of Washington D.c.
D)deals with most of the commercial banks of the nation

Question 68

The Board of Governors:

A)is elected by the member banks
B)is appointed by the Senate
C)has seven members appointed for 14-year terms
D)has seven members appointed for a term of 12 years

Question 69

All Federal Reserve Banks have:

A)check clearance facilities
B)branch banks
C)directors who are elected for 14-year terms
D)directors who are appointed by the President of the United States

Question 70

Bank holding companies are supervised and examined by:

A)the Comptroller of the Currency
B)the FDIC
C)the Federal Reserve
D)internal auditors only

Question 71

Which of the following statements would be false? The discount rate is

A)an instrument of monetary policy
B)frequently used as a tool of fiscal policy
C)regarded as a fine-tuning mechanism
D)all the above are true

Question 72

The discount rate is:

A)the rate charged a bank's best customers
B)the rate paid by large business with good credit
C)the rate a bank must pay to borrow from the Fed
D)none of the above

Question 73

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

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

Question 74

The effect of an increase of required reserves by the Fed is:

A)a decrease in loanable funds of depository institutions
B)a decrease in interest rates
C)usually an increase in vault cash
D)to stimulate activity in the home construction field

Question 75

In addition to the clearing of checks through Federal Reserve Banks,the Fed accommodates check clearing through:

A)check clearinghouses it sponsors in major cities
B)its branches and a group of regional check-processing centers
C)electronic transfers of funds
D)the United Postal Service

Question 76

For which of the following are member banks prohibited from borrowing at the Fed's discount window?

A)funds to meet reserve requirements
B)funds to meet depositor withdrawal demands
C)to meet business loan demands
D)all the above are permitted
E)none of the above are permitted

Question 77

It is generally agreed by the public that the Federal Reserve System:

A)should not engage in international exchange controls
B)carries out its functions reasonably well
C)is distrusted by business as well as by banking interests
D)should be under the control of the U.S.Treasury

Question 78

The Federal Reserve is empowered to encourage depository institutions to help meet the needs of communities for housing and other purposes:

A)through the Community Reinvestment Act
B)through the Truth in Lending Act
C)by a provision of the Fair Housing Act
D)by strictly enforcing usury laws setting maximum interest rates

Question 79

The Federal Reserve Banks are owned by:

A)commercial banks
B)the U.S.Treasury
C)national member banks of the Federal Reserve System
D)member banks of the Federal Reserve System

Question 80

Each Federal Reserve Bank has a president and first vice-president who are appointed by:

A)the Board of Governors
B)the President of the United States
C)the President of the United States with the advice and consent of the Senate
D)its board of directors