Deck 19: Organization of Central Banks

Question 1

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

Answer 1

Federal Deposit Insurance Corporation

Question 2

When did the Federal Reserve Act become law?

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

Answer 2

1913

Question 3

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.

Answer 3

was created by Congress to study the setting up of a central bank.

Question 4

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

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

Question 5

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 6

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

Question 7

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 8

Which of the following Federal Reserve district banks was NOT a major population center at the time the Fed was created?

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

Question 9

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 10

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

Question 11

How many Federal Reserve districts are there?

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

Question 12

Who organized the Bank of the United States?

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

Question 13

Which of the following cities contains a Federal Reserve bank?

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

Question 14

Who is Trichet?

A)Chairman of the Board of Governors of the Federal Reserve System
B)Vice-Chairman of the Board of Governors of the Federal Reserve System
C)President of the European Central Bank
D)Secretary of the Treasury

Question 15

In October 2005, President Bush nominated which of the following to be chair of the Federal Reserve?

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

Question 16

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 17

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 18

Who is Alan Greenspan?

A)Chair of the Federal Reserve
B)Former chair of the Federal Reserve
C)A recent secretary of Treasury
D)Founder of the Federal Reserve

Question 19

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 20

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)monetary policy.

Question 21

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 22

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 23

About how many banks are Federal Reserve System members?

A)500
B)1000
C)3000
D)4000

Question 24

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 25

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 26

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 27

Federal Reserve 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

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 29

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 30

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 31

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 32

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 33

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

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

Question 34

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 35

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.

Question 36

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 37

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 38

The reserve tax refers to

A)the tax nonmember banks must pay to the Fed on their reserves.
B)the tax member banks must pay to the Fed on their reserves.
C)the tax member banks must pay to the Fed on their vault cash.
D)the interest earnings banks forgo on their reserve accounts at the Fed.

Question 39

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 40

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 41

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)its net income is more than $25 billion per year.
D)it is not part of the legislative branch of the federal government.

Question 42

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 43

Most Fed watchers believe that the Fed is

A)centralized in theory, but decentralized in practice.
B)decentralized in theory, but centralized in practice.
C)decentralized in both theory and practice.
D)centralized in both theory and practice.

Question 44

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 45

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 46

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 47

Member banks

A)exercise tight control over the Federal Reserve banks.
B)are not owners of Federal Reserve banks.
C)in practice, receive dividend payments far in excess of the 6% rate specified by law.
D)have none of the rights typically granted to shareholders of private corporations.

Question 48

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 49

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 50

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 51

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 52

Elections to the boards of directors of Federal Reserve district banks

A)have a sizeable impact on the conduct of monetary policy.
B)typically involve only one candidate per position.
C)have greatly increased in importance over the years.
D)were abolished in 1985.

Question 53

The Treasury was in conflict with Alan Greenspan early in the Bush administration because the Treasury

A)wanted the Fed to make fighting inflation its top priority.
B)wanted the Fed to raise interest rates.
C)wanted the Fed to lower the required reserve ratio.
D)wanted the Fed to pursue an expansionary monetary policy.

Question 54

According to Sherman Maisel's experience, the most powerful group in the Fed, apart from the chairman of the Board of Governors, is

A)the staff of the Board of Governors and the FOMC.
B)the other members of the Board.
C)the Federal Reserve Bank presidents.
D)the Federal Reserve Bank boards of directors.

Question 55

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 56

The beige book is prepared by

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

Question 57

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

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

Question 58

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 59

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 60

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 61

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 62

The man appointed as Fed chairman by President Carter in July 1979 to lead the fight against inflation was

A)Paul Volcker.
B)Alan Greenspan.
C)G. William Miller.
D)Milton Friedman.

Question 63

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 64

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 65

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)does a good job of explaining monetary policy during some presidential election years, but not during others.
D)explains monetary policy best during years in which the President is running for reelection.

Question 66

During the early 1980s, Paul Volcker argued that the Fed could not

A)decrease money supply growth until interest rates were higher.
B)increase money supply growth until the Treasury's borrowing increased.
C)decrease money supply growth until the federal budget deficit was reduced.
D)increase money supply growth until the federal budget deficit was reduced.

Question 67

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 68

Governors of the Fed often do not serve their full fourteen-year terms because

A)they are removed by the President.
B)they are removed by Congress.
C)a new President takes office and they are compelled to resign.
D)they can earn higher incomes in private business.

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 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 71

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 72

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 73

A chairman of the Board of Governors who is not reappointed

A)must resign his position on the Board.
B)typically serves out the remainder of his term on the Board.
C)need not resign from his position on the Board, but typically does.
D)will often contest the President's decision by appealing to Congress.

Question 74

Which chairman of the Board of Governors was not reappointed by President Truman in 1948 as a result of a conflict between the Fed and the Treasury?

A)Paul Volcker
B)Marriner Eccles
C)G. William Miller
D)Milton Friedman

Question 75

The Humphrey-Hawkins Act

A)requires the Fed to keep the inflation rate below 4%.
B)requires the Fed to explain how its monetary growth targets are consistent with the President's economic objectives.
C)gives the Board of Governors a majority on the FOMC.
D)allows the Fed to set the required reserve ratio.

Question 76

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 77

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 78

In 1979, President Carter hoped to appoint a Fed chairman who would bring down inflation, thus helping President Carter to be reelected in 1980. In this respect, President Carter was

A)successful; inflation was brought down and he was reelected.
B)unsuccessful; inflation remained high and he was defeated for reelection.
C)partly successful; inflation was brought down but he was defeated for reelection.
D)partly successful; inflation remained high but he was reelected.

Question 79

House Concurrent Resolution 133

A)requires the Fed to announce targets for the growth of monetary aggregates.
B)allows the President to appoint the chairman of the Board of Governors without congressional approval.
C)gives the Board of Governors a majority on the FOMC.
D)requires congressional approval of changes in the discount rate.

Question 80

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.