Deck 13: The Federal Reserve and Central Banking

Question 1

Who had served as a de facto lender of last resort during the 1907 panic?

A) The U.S. Treasury
B) J. P. Morgan
C) Henry Ford
D) John D. Rockefeller

Answer 1

B

Question 2

Which president failed to renew the charter of the Second Bank of the United States?

A) George Washington
B) Andrew Jackson
C) Franklin Roosevelt
D) Lyndon Johnson

Answer 2

B

Question 3

Which of the following statements is correct?

A) Federal Reserve district banks are owned by the government.
B) Member banks receive no return on the stock they own in Federal district banks.
C) Federal Reserve district banks pay dividends on their earnings to member banks.
D) The boards of directors of the district banks are all local bankers.

Answer 3

C

Question 4

In 1913,Congress and the President did not envision that the Fed would control

A) the money supply.
B) discount loans.
C) lender-of-last-resort activity.
D) broad control over most aspects of money and the banking system.

Question 5

The members of Federal Reserve district bank boards of directors who are bankers are known as

A) Class A directors.
B) Class B directors.
C) Class C directors.
D) Class D directors.

Question 6

In January 2006,President Bush appointed which of the following to be chair of the Federal Reserve?

A) Greenspan
B) Bernanke
C) Fukui
D) Trichet

Question 7

The National Monetary Commission

A) was created by Congress to study the setting up of a central bank.
B) authorizes open market operations.
C) oversees nationally chartered banks.
D) chooses Federal Reserve district bank presidents.

Question 8

Which of the following cities does NOT contain a Federal Reserve bank?

A) Cleveland
B) Dallas
C) Los Angeles
D) Boston

Question 9

Which of the following is NOT a way in which power was divided up in the Federal Reserve System?

A) between bankers and business interests
B) among states and regions
C) between importers and exporters
D) between government and the private sector

Question 10

Which best describes the Federal Reserve district banks?

A) They are private ventures.
B) They are government ventures.
C) Some are private while others are government.
D) They are private-government joint ventures.

Question 11

Which groups were opposed to the Bank of the United States?

A) northeastern industrial interests
B) northeastern financial interests
C) southern and western agrarian and small-business interests
D) exporters

Question 12

Which of the following is NOT considered one of the four principal groups in the Federal Reserve System?

A) Federal Reserve banks
B) Federal Deposit Insurance Corporation
C) Board of Governors
D) Federal Open Market Committee

Question 13

Who owns the Federal Reserve banks?

A) The private commercial banks in each district which are members of the Federal Reserve System.
B) Those households which have purchased stock in Federal Reserve System.
C) The federal government
D) The governments of the states in which the banks are located.

Question 14

When did the Federal Reserve Act become law?

A) 1836
B) 1913
C) 1936
D) 1951

Question 15

Federal Reserve districts

A) conform to state boundaries.
B) group together economically similar states.
C) have equal populations.
D) cut across state and economic boundaries.

Question 16

Who organized the Bank of the United States?

A) Alexander Hamilton
B) George Washington
C) Andrew Jackson
D) Woodrow Wilson

Question 17

Which of the following cities contains a Federal Reserve bank?

A) Pittsburgh
B) Los Angeles
C) Seattle
D) Dallas

Question 18

The movement to set up a central bank in the United States was spurred by the financial panic that occurred in

A) 1816.
B) 1907.
C) 1929.
D) 1987.

Question 19

Why has the Federal Reserve chairman often been called the second most important person in the nation?

A) Because the Fed chairman has veto power over all federal spending.
B) Because the Fed is in control of monetary policy.
C) Because the Fed chairman draws the second highest salary of any official of the federal government.
D) Because the Fed has regulatory power over all financial markets.

Question 20

How many Federal Reserve districts are there?

A) 1
B) 2
C) 12
D) 50

Question 21

The margin requirement set by the Federal Reserve is the

A) proportion of the purchase price of a security that an investor must pay in cash.
B) difference between the interest rate banks may charge on loans and the interest rate they receive from deposits.
C) same thing as the required reserve ratio on deposits.
D) difference banks must maintain between the value of their assets and the value of their liabilities.

Question 22

Which of the following statements about the Depository Institutions Deregulation and Monetary Control Act of 1980 is NOT correct?

A) It required all banks to maintain reserve deposits with the Fed.
B) It gave member and nonmember banks equivalent access to discount loans.
C) It halted the decline in Fed membership.
D) It eliminated restrictions on interstate banking for member banks.

Question 23

Members of the Board of Governors are

A) elected by the district bank presidents.
B) appointed by the President of the United States, subject to confirmation by the Senate.
C) appointed by the National Monetary Commission.
D) appointed by the Securities and Exchange Commission, subject to congressional veto.

Question 24

Which of the following men has NOT served as Chairman of the Board of Governors?

A) Milton Friedman
B) Arthur Burns
C) Paul Volcker
D) Alan Greenspan

Question 25

What is the name of the entity,composed of Federal Reserve district bankers,that consults on monetary policy?

A) The Federal Open Market Committee
B) The Federal Advisory Council
C) The Monetary Policy Council
D) The District Bank Committee

Question 26

Why did fewer state banks choose to become or remain members of the Federal Reserve System during the 1960s and 1970s?

A) Nominal interest rates rose.
B) The required reserve ratio rose.
C) The discount rate rose.
D) Open market operations declined.

Question 27

Federal Reserve district banks perform all of the following roles EXCEPT

A) managing checking clearing in the payments system.
B) performing regulatory functions.
C) setting the federal funds rate.
D) managing currency in circulation by issuing new Federal Reserve Notes.

Question 28

The members of Federal Reserve district bank boards of directors who represent the public interest are known as

A) Class A directors.
B) Class B directors.
C) Class C directors.
D) Class D directors.

Question 29

The Depository Institutions Deregulation and Monetary Control Act of 1980

A) eliminated the requirement that banks hold reserve deposits with the Fed.
B) required all state banks to join the Federal Reserve System.
C) required all banks to maintain reserve deposits with the Fed.
D) prohibited nonmember banks from receiving discount loans.

Question 30

Members of the Board of Governors

A) must resign when the President who has appointed them leaves office.
B) may serve no more than three consecutive four-year terms.
C) serve for life or good behavior.
D) serve one nonrenewable fourteen-year term.

Question 31

The members of Federal Reserve district bank boards of directors appointed by the Board of Governors are known as

A) Class A directors.
B) Class B directors.
C) Class C directors.
D) Class D directors.

Question 32

What percentage of all banks in the United States belong to the Federal Reserve System?

A) 5%
B) 33%
C) 75%
D) 90%

Question 33

Which of the following is NOT a responsibility of the Board of Governors?

A) approving bank mergers
B) determining permissible activities for bank holding companies
C) carrying out open market operations
D) setting the salaries of the presidents and officers of district banks

Question 34

What is the length of a term for the Chairman of the Board of Governors?

A) One year
B) Four years
C) 14 years
D) 28 years

Question 35

Under the Federal Reserve Act,which banks must be members of the Federal Reserve System?

A) all commercial banks
B) national banks
C) state banks
D) all banks with capital in excess of $100 million

Question 36

Which of the following is NOT an activity carried out by Federal Reserve district banks?

A) open market operations
B) issuing new Federal Reserve Notes
C) making discount loans
D) examining state member banks

Question 37

The national economic forecast for the next two years prepared by the staff of the Board of Governors is published in the

A) green book.
B) beige book.
C) blue book.
D) Fed book.

Question 38

The Federal Reserve district banks

A) do not engage in monetary policy.
B) engage in monetary policy directly through discount lending.
C) engage in monetary policy directly through open market operations.
D) engage in monetary policy directly through their membership on Federal Reserve committees.

Question 39

The members of Federal Reserve district bank boards of directors who are leaders in industry,commerce,and agriculture are known as

A) Class A directors.
B) Class B directors.
C) Class C directors.
D) Class D directors.

Question 40

The beige book is prepared by

A) district banks.
B) Board of Governors.
C) FOMC staff members.
D) commerce department.

Question 41

What is included in the public statement released by the FOMC following the conclusion of its meeting?

Question 42

What was the original intent of the Federal Reserve Act of 1913?

Question 43

All of the following help make the Fed independent of the political process EXCEPT

A) financial independence.
B) chair of Fed receives a lifetime appointment.
C) Board members receive a long, nonrenewable appointment.
D) Board members' terms expire at different times, reducing the possible number of appointees by any one president.

Question 44

Who serves as voting members of the Federal Open Market Committee (FOMC)?

Question 45

During World War II

A) the Board of Governors was temporarily disbanded.
B) the Fed was not allowed to make discount loans.
C) the Fed agreed to hold interest rates on short-term Treasury securities at low levels.
D) the Fed agreed not to buy Treasury securities.

Question 46

How do individual become members of the Board of Governors?

Question 47

The Fed does not have to go through the normal congressional appropriations process because

A) its expenses are very small.
B) it was given enough funds at the time of its founding to provide for its expenses indefinitely.
C) it is self financing.
D) it is not part of the legislative branch of the federal government.

Question 48

Who are the members of the Financial Stability Oversight Council?

Question 49

The president of which Federal Reserve bank is always a voting member of the Federal Open Market Committee?

A) Philadelphia
B) Boston
C) Chicago
D) New York

Question 50

What are the roles of Federal Reserve district banks?

Question 51

How did the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 affect the Fed's

Question 52

What are the three books to which the FOMC has access and what information is included in each?

Question 53

In the early post-war years,the Fed was reluctant to continue its wartime agreement with the Treasury because it believed the result would be

A) recession.
B) inflation.
C) higher taxes.
D) lower taxes.

Question 54

What is the main reason the Fed operates in a political arena?

A) It lacks a constitutional mandate.
B) The members of the Board of Governors must run for reelection every fourteen years.
C) The members of the Board of Governors are typically prominent politicians.
D) It is under the direct control of Congress.

Question 55

Most of the Fed's earnings come from

A) fees charged to financial institutions for check clearing.
B) interest on the securities it holds.
C) interest on discount loans.
D) congressional appropriations.

Question 56

Which of the following statements is correct?

A) The Fed is fully insulated from external pressures due to the long terms that members of the Board of Governors serve.
B) The Fed is fully insulated from external pressures because it does not need to go through the normal congressional appropriations process.
C) The Fed is fully insulated from external pressures because it has a constitutional mandate.
D) The Fed is only partially insulated from external pressures.

Question 57

To conduct open market operations,the FOMC issues a directive to

A) the trading desk at the Federal Reserve Bank of New York.
B) the Board of Governors in Washington, D.C.
C) the presidents of the district banks.
D) the chairman of the New York Stock Exchange.

Question 58

The Banking Acts of 1933 and 1935

A) established the Federal Reserve System.
B) increased central control of the Federal Reserve System.
C) eliminated the authority of the Board of Governors to set reserve requirements.
D) made the Secretary of the Treasury a member of the Board of Governors.

Question 59

What is the primary objective of the Financial Stability Oversight Council?

Question 60

The Chairman of the Federal Open Market Committee is also

A) the president of the Federal Reserve Bank of New York.
B) the chairman of the Securities and Exchange Commission.
C) the chairman of the Federal Deposit Insurance Corporation.
D) the chairman of the Board of Governors.

Question 61

The issue of Fed independence is most often raised by

A) disagreement over the role the Fed should play in managing monetary policy.
B) the Fed's refusal to carry out the wishes of the President.
C) the Fed's refusal to carry out the wishes of Congress.
D) the public's negative reaction to Fed policy.

Question 62

Which of the following is the most common goal for central banks of industrialized countries?

A) high employment
B) high economic growth
C) low interest rates
D) low inflation

Question 63

In what ways is the Fed independent of the political process?

Question 64

The public interest view of Fed motivation holds that the Fed acts in the interest of

A) the general public.
B) banks.
C) Congress.
D) itself.

Question 65

Which of the following statements is correct?

A) The Fed has difficulty covering its normal expenses, but is reluctant to ask Congress for money.
B) The Fed is dependent on the annual appropriations it receives from Congress.
C) The Fed's profits are substantial, even when compared to the largest U.S. corporations.
D) At one time the Fed made substantial profits, but falling interest rates have greatly reduced them.

Question 66

The main argument against Fed independence is that

A) in a democracy elected officials should make public policy.
B) monetary and fiscal policy would be easier to coordinate if the Fed were not independent.
C) the Fed has proven irresponsible on many occasions.
D) congressional control was tried during the 1960s and it worked well.

Question 67

Which of the following appears to be evidence against the public interest view of the Fed's motivation?

A) The conflict with the Treasury over interest rate fixing during World War II.
B) The failure of the Fed to emphasize the goal of price stability.
C) The unwillingness of the Fed to turn over its excess profits to the Treasury.
D) The independence of Fed chairmen from the authority of the President.

Question 68

The facts show that the political business cycle theory

A) does a good job of explaining monetary policy during presidential election years.
B) is unable to explain monetary policy during presidential election years.
C) doesn't generally support the political business cycle theory.
D) explains monetary policy best during years in which the President is running for reelection.

Question 69

The principal-agent view of Fed motivation predicts that the Fed acts

A) to promote the interests of the general public.
B) to promote the interests of the Fed's principal the President of the United States.
C) in order to increase its power, influence, and prestige.
D) in order to make sure its agents commercial banks carry out its wishes.

Question 70

The main argument in favor of Fed independence is that

A) interest rates would probably be lower if Congress controlled the Fed; thus hurting savers.
B) the Constitution requires it.
C) monetary policy is too important and too technical to be determined in the political arena.
D) congressional control of the Fed was tried during the 1960s and did not work well.

Question 71

Apart from the United States,in countries where central bank board members serve fixed terms of office,

A) none have terms as long as fourteen years.
B) many serve for life or good behavior.
C) all have terms longer than fourteen years.
D) the head of the central bank rarely has a term longer than one year.

Question 72

The political business cycle theory predicts that

A) the Fed acts to promote the interests of the general public.
B) the Fed acts to stimulate economic activity before an election.
C) the President's appointments to the Board of Governors will usually be politicians.
D) political factors over which the Fed has no control are most important in explaining the business cycle.

Question 73

What are the limitations to the Fed's independence?

Question 74

Which central bank gained the power to set interest rates independent of the government in the late 1990s?

A) Bank of England
B) Bank of Canada
C) Bank of China
D) Federal Reserve Board

Question 75

Generally,

A) countries with the most independent central banks have the lowest inflation rates.
B) countries with the least independent central banks have the lowest inflation rates.
C) countries without central banks have the lowest inflation rates.
D) the degree of independence of a country's central banks has little to do with its inflation rate.

Question 76

Why might Congress benefit from the Fed being self-financed?

A) Self-financing increases Congressional control over the Fed.
B) Self-financing reduces the Fed's exposure to external pressures.
C) Self-financing gives the Fed an incentive to expand the money supply, which ultimately results in Congress having additional funds to spend.
D) Congress does not benefit from the Fed being self-financed; Congress is obliged by the Constitution to allow the Fed to be self-financed.

Question 77

Who sets the inflation target for the Bank of England?

A) Prime Minister
B) Chancellor of the Exchequor
C) head of the monetary policy committee
D) majority vote of the monetary policy committee

Question 78

What are the primary arguments for and against the independence of the Fed?

Question 79

Which of the following countries does not have an official inflation target?

A) Canada
B) United Kingdom
C) New Zealand
D) United States

Question 80

How are the operations of the Federal Reserve financed?