Deck 15: The Federal Reserve System

Question 1

During the period when Ben Bernanke was the Fed's Chairman, the inflation rate averaged at about 1.7%.In comparison to other periods when the Fed was headed over by other chairmen, this inflation rate can be considered to be

A)average.
B)the highest.
C)the lowest.
D)above average but not the highest.

Answer 1

C

Question 2

The Beigebook is

A)a report on recent international economic conditions and forecasts for the next two years.
B)a discussion of alternative policy choices and the implications of those choices.
C)a report on local economic conditions.
D)a report on Federal revenue and expenditure.

Answer 2

C

Question 3

Under which Fed Chairman did the inflation rate decline the most?

A)William McChesney Martin
B)Arthur Burns
C)Paul Volcker
D)Alan Greenspan

Answer 3

C

Question 4

?Compiling information on basic economic variables such as the unemployment rate and inflation rate is referred to as _____among Fed members.

A)?code­halo analytics
B)?up­and­down economics
C)?real­time data mining
D)?economic sequencing

Question 5

Of the nine directors of each Federal Reserve Bank, are elected by member banks.

A)zero
B)three
C)six
D)nine

Question 6

Which Fed chairman ensured the independence of the Federal Reserve in the 1950s?

A)William McChesney Martin
B)Arthur Burns
C)Paul Volcker
D)G.William Miller

Question 7

Which of the following Federal Reserve Banks performs the role of buying or selling currencies in the foreign exchange market?

A)The Federal Reserve Bank of Minneapolis
B)The Federal Reserve Bank of Boston
C)The Federal Reserve Bank of New York
D)The Federal Reserve Bank of San Francisco

Question 8

Which of the following statements is true?

A)The annual income from securities far exceeds the annual expenditures of the Federal Reserve Bank.
B)The Federal Reserve Bank's president is elected for a fourteen year renewable term.
C)All banking services provided by the Federal Reserve Bank are free of charge.
D)The Federal reserve Bank delegates its open market operations to smaller commercial banks.

Question 9

The discount rate is the

A)targeted inflation rate for an economy.
B)ongoing taxation rate in an economy.
C)interest rate that the Fed charges on the loans it makes.
D)nominal interest rate charged by financial intermediaries when they advance loans.

Question 10

​Publications of the Federal Reserve Bank such as the economic review are available

A)​​to the public for free.
B)​only to the President of the United States.
C)only to members of the Federal Reserve Bank.
D)to all individuals willing to pay a fixed annual subscription charge.

Question 11

Shares in the Federal Reserve Banks are owned by

A)the federal government of the United States.
B)banks that are members of the Federal Reserve System.
C)the governments of the states in which they are located.
D)private citizens who own stock in them.

Question 12

How long is the normal term in office for a Governor of the Federal Reserve Board?

A)Five years
B)Seven years
C)Fourteen years
D)Life

Question 13

There are_____ Federal Reserve Banks located around the United States.

A)seven
B)ten
C)twelve
D)fifteen

Question 14

In which of the following cities is a Federal Reserve Bank NOT located

A)Richmond.
B)Denver.
C)Kansas City.
D)St.Louis.

Question 15

The chairman of the Federal Reserve Board, under whose leadership the inflation rate reduced from about 10 percent to about 4 percent in the 1980s was

A)Arthur Burns.
B)G.William Miller.
C)Paul Volcker.
D)Alan Greenspan.

Question 16

The directors of a Federal Reserve Bank include

A)three class A directors, who are bankers and are chosen by member banks; three class B directors, who are business leaders and are also chosen by member banks; and three class C directors, who are public-interest directors and are chosen by the Board of Governors.
B)three class A directors, who are bankers and are chosen by member banks; three class B directors, who are politicians and are also chosen by member banks; and three class C directors, who are public-interest directors and are chosen by the Board of Governors.
C)three class A directors, who are bankers and are chosen by public voting; three class B directors, who are politicians and are also chosen by member banks; and three class C directors, who are public-interest directors and are chosen by the Board of Governors.
D)three class A directors, who are bankers and are chosen by member banks and three class B directors, who are business leaders and are also chosen by public voting.

Question 17

The _____appoints one of the members of the Federal Reserve Board of Governors as chairman of the Board of Governors for a______ ,_____ term.

A)President of the United States; non-renewable; fourteen-year
B)Board of Directors; renewable; five-year
C)U.S.Senate; non-renewable; seven-year
D)President of the United States; renewable; four-year

Question 18

Federal Reserve Banks mostly pay for their central banking operations through

A)government tax revenue.
B)interest on the securities they own.
C)fees charged to banks that use their services.
D)dividends paid by local banks.

Question 19

Each Federal Reserve Bank is

A)a corporation.
B)a government owned enterprise.
C)a publicly traded company.
D)a government-sponsored enterprise.

Question 20

In 2006, Chairman Greenspan left the Fed because

A)President Bush wanted him to resign.
B)he reached mandatory retirement age.
C)his term as Governor expired.
D)his term as Chairman expired.

Question 21

The Federal Reserve publication that discusses forecasts for the economy is known as the

A)Redbook.
B)Beigebook.
C)Bluebook.
D)Greenbook.

Question 22

Which of the following statements is true?

A)If the Fed wants to decrease money supply, it sells government securities.
B)If the Fed wants to increase money supply, it sells government securities.
C)If the Fed wants to decrease money demand, it sells government securities.
D)If the Fed wants to increase money demand, it sells government securities.

Question 23

The interest rate on short-term loans between banks is known as the

A)primary credit discount rate.
B)federal funds rate.
C)commercial paper rate.
D)T-bill rate.

Question 24

Primary government securities dealers are _____that meet certain capital requirements and agree to actively transact with the Fed when it engages in open-market operations.

A)small investment banks and brokers
B)large stockbrokers
C)large investment banks and brokers
D)community banks and credit unions

Question 25

Which of the following statements is true?

A)If the Fed wants to decrease money supply, it buys government securities.
B)If the Fed wants to increase money supply, it buys government securities.
C)If the Fed wants to decrease money demand, it buys government securities.
D)If the Fed wants to increase money demand, it buys government securities.

Question 26

The main object of FOMC voting is to set the target

A)inflation rate.
B)federal funds rate.
C)unemployment rate.
D)foreign exchange rate.

Question 27

Open-market operations are carried out between the Open Market Desk of the Fed and

A)foreign central banks.
B)the U.S.government.
C)citizens residing in the U.S.
D)primary government securities dealers.

Question 28

Open-market operations are purchases and sales of

A)government securities in the secondary market.
B)government securities in the primary market.
C)corporate bonds in the secondary market.
D)corporate bonds in the primary market.

Question 29

Voting members of the FOMC include

A)the seven Federal Reserve governors, the presidents of the Federal Reserve Banks of New York, San Francisco, and Chicago, and the presidents of four other Federal Reserve Banks, on a rotating basis.
B)five of the seven Federal Reserve governors and the presidents of five Federal Reserve Banks on a rotating basis.
C)all of the Federal Reserve governors and the presidents of all Federal Reserve Banks.
D)the seven Federal Reserve governors, the president of the Federal Reserve Bank of New York, and the presidents of four other Federal Reserve Banks on a rotating basis.

Question 30

One half of a percentage point equals ____basis points.

A)0.5
B)5
C)50
D)500

Question 31

When the Fed engages in an overnight reverse repo

A)a bank agrees to hold a certain amount of clearing balances at the Fed.
B)the fed sells securities and agrees to buy them back in one day.
C)a primary government securities dealer agrees to sell a security to the Fed one day and buy it back the next day.
D)The Fed repossesses property that a bank owns as punishment for the bank's failure to pay off a discount loan.

Question 32

The Open Market Desk is located at

A)the Federal Reserve Bank of Boston.
B)the Federal Reserve Bank of Philadelphia.
C)the Federal Reserve Bank of New York.
D)the Federal Reserve Bank of Chicago.

Question 33

A Federal Reserve policymaker voting to tighten monetary policy is most likely voting for option

A)A.
B)B.
C)C.
D)D.

Question 34

The Fed document that shows different policy options is called the

A)Beigebook.
B)Greenbook.
C)Bluebook.
D)Redbook.

Question 35

When the Fed engages in an overnight repo

A)a bank agrees to hold a certain amount of clearing balances at the Fed.
B)a secondary government securities dealer agrees to buy a security from the Fed one day and sell it back the next day.
C)a primary government securities dealer agrees to sell a security to the Fed one day and buy it back the next day.
D)The Fed repossesses property that a bank owns as punishment for the bank's failure to pay off a discount loan.

Question 36

In the Federal Open Market Committee,

A)the Federal Reserve Bank of Kansas City always votes.
B)the Federal Reserve Bank of Washington always votes.
C)the Federal Reserve Bank of San Francisco always votes.
D)the Federal Reserve Bank of New York always votes.

Question 37

One-hundredth of a percentage point is called a(n)_____ point.

A)stock
B)basic
C)basis
D)federal interest

Question 38

Expenditures of each Federal Reserve Bank are approved by

A)the U.S.Senate.
B)the President of the United States.
C)the U.S.Treasury Department.
D)the Federal Reserve Board of Governors.

Question 39

The main advisors of the Chairman of the Federal Reserve Board of Governors are

A)private economists hired as consultants.
B)the Council of Economic Advisors.
C)the U.S.Treasury Department.
D)the directors of the three staff divisions of the Board.

Question 40

A transaction in which the Fed agrees to buy a security one day and sell it back the next day is referred to as a(n)

A)overnight securitization operation.
B)repurchase agreement.
C)legal tender.
D)rebate sale.

Question 41

When monetary policy eases before elections to favor incumbent politicians, it is referred to as

A)a liquidity trap.
B)an expectations trap.
C)political creative destruction.
D)a political business cycle.

Question 42

Are there any benefits to having both banking supervisors and economic researchers working together at a Reserve bank?

Question 43

A Federal Reserve policymaker voting to keep the federal funds rate unchanged is most likely voting for option

A)A.
B)B.
C)C.
D)D.

Question 44

What are the central banking functions that a Federal Reserve Bank performs?

Question 45

Describe the relationship between central bank independence and macroeconomic variables such as inflation and growth.

Question 46

If Federal Reserve governors can only serve one fourteen-year term, how is it possible that Greenspan joined the Fed in 1987 and did not leave until 2006?

Question 47

Why are the deliberations of the FOMC kept secret?

Question 48

Comment on the success of various Fed chairmen in reducing inflation.

Question 49

There is strong evidence that political business cycles are prevalent in

A)Germany.
B)Japan.
C)the U.S.
D)New Zealand.

Question 50

Explain the rationale behind having twelve Federal Reserve Banks scattered around the country.

Question 51

Each of the following helps the Federal Reserve to be independent of the federal government except

A)the fourteen-year terms of the governors.
B)the establishment of the Fed in the Constitution.
C)the staggered terms of the governors.
D)the independence of the Fed's income.

Question 52

Is there evidence that the Federal Reserve has built itself into an inefficient bureaucracy?

Question 53

Why isn't the right to vote at FOMC meetings considered to be very important within the Fed?

Question 54

When a central bank is not independent, the main economic variable that is affected is

A)unemployment.
B)output growth.
C)inflation.
D)consumption spending.

Question 55

Describe the roles of the Federal Reserve governors other than the chairman.

Question 56

What step does the Board of governors of the Fed take to ensure that the Fed does not built itself into an inefficient bureaucracy?

Question 57

Describe the Beigebook, the Greenbook, and the Bluebook.

Question 58

A Federal Reserve policymaker voting for option A is most likely doing so because of a need to

A)tighten monetary policy.
B)maintain monetary policy at an unchanged level.
C)ease monetary policy.
D)give the chairman discretion to change monetary policy.

Question 59

Which of the following statements is true?

A)The Fed does not need to rely on the Government for its operating funds.
B)Open market operations can be used by the Fed only to tighten monetary policy and not to ease it.
C)The Board of Governors of the Fed is headed by the President of the United States.
D)The operations of the Fed are deeply dependent on the actions of the ruling political power.