Chapter 04: Functions of the Fed
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1. Which of the following is not a major component of the Federal Reserve System?
a.
member banks
b.
Federal Open Market Committee
c.
Securities and Exchange Commission
d.
Board of Governors
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
2. As a result of the Financial Reform Act of 2010, the ____ was established to regulate financial products and services.
a.
b.
c.
d.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
3. Which of the following is not an activity of Fed district banks?
a.
clearing checks
b.
replacing old currency
c.
providing loans to depository institutions
d.
acting as an intermediary to match up lenders and borrowers in the stock market
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
4. All ____ are required to be members of the Federal Reserve System.
a.
state banks
b.
national banks
c.
savings and loan associations
d.
finance companies
e.
A and B
ANSWER:
b
POINTS:
1
Chapter 04: Functions of the Fed
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ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
9. The ____ rate is the interest rate charged on the Fed’s short-term loans to depository institutions.
a.
federal funds
b.
prime
c.
primary credit lending
d.
real
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
10. Which of the following is an action that the Fed uses to increase or decrease the money supply?
a.
buying or selling Treasury securities in the secondary market
b.
adjusting the tax rate imposed on income earned on Treasury securities
c.
adjusting the coupon rate on Treasury bonds
d.
selling Treasury securities in the primary market
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
11. The policy directive is provided by Board of Governors to the FOMC.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
12. Total funds of commercial banks will initially ____ by the dollar amount of securities ____ by the Fed.
a.
increase; purchased
b.
increase; sold
Chapter 04: Functions of the Fed
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Page 4
c.
decrease; purchased
d.
A and B
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
13. The purchase of government securities by someone other than the Fed results in
a.
an overall increase in funds among commercial banks.
b.
an overall decrease in funds among commercial banks.
c.
offsetting changes in funds at commercial banks.
d.
an increase in securities maintained by the Fed.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
14. As the supply of funds in the banking system ____, the federal funds rate ____.
a.
increases; declines
b.
increases; increases
c.
declines, declines
d.
none of the above
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
15. Repurchase agreements are purchased by the Fed to
a.
temporarily decrease the aggregate level of bank funds.
b.
permanently increase the aggregate level of bank funds.
c.
permanently decrease the aggregate level of bank funds.
d.
temporarily increase the aggregate level of bank funds.
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
Chapter 04: Functions of the Fed
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16. When open market operations are used to ____ bank funds, the yield on debt instruments ____.
a.
reduce; decreases
b.
reduce; increases
c.
increase; increases
d.
none of the above
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
17. ____ open market operations offset the impact of other conditions that affect the level of funds.
a.
Active
b.
Passive
c.
Dynamic
d.
Defensive
ANSWER:
d
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
18. The main monetary policy goal of most central banks is to stabilize the value of the local currency against foreign
currencies.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
19. The primary credit lending rate changes in accordance with changes in the federal funds rate.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
Chapter 04: Functions of the Fed
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20. credit may be used for any purpose and is available only to depository institutions that meet specific
requirements for financial soundness.
a.
Primary
b.
Secondary
c.
Tertiary
d.
None of the above
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
21. To decrease the money supply, the Fed could the reserve requirement ratio.
a.
increase
b.
stabilize
c.
reduce
d.
eliminate
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
22. The the reserve requirement ratio, the the ultimate effect of any initial increase in the money supply.
a.
lower; less
b.
lower; greater
c.
greater; less
d.
B and C
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
23. The is directly responsible for controlling money supply growth.
a.
Federal Advisory Council
b.
FOMC
c.
Board of Governors
d.
President of the United States
ANSWER:
b
POINTS:
1
Chapter 04: Functions of the Fed
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Page 8
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
28. The voting members of the Federal Open Market Committee consist of the Board of Governors plus the
a.
President of the United States.
b.
presidents of the 12 Fed district banks.
c.
presidents of 5 Fed district banks.
d.
Federal Advisory Council.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
29. The Board of Governors is composed of
a.
seven members appointed by the President of the United States.
b.
the 12 presidents of Fed district banks.
c.
the Federal Open Market Committee, plus the Federal Advisory Council.
d.
the Federal Open Market Committee, plus the President of the United States.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
30. The ____ is directly responsible for setting reserve requirements.
a.
Federal Advisory Council
b.
FOMC
c.
Board of Governors
d.
President of the United States
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
Chapter 04: Functions of the Fed
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a.
buy; decrease
b.
sell; increase
c.
buy; increase
d.
sell; decrease
e.
A and B
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
39. Which of the following statements is incorrect with respect to a single European monetary policy?
a.
It allows for more consistent economic conditions across the countries.
b.
It prevents any participating European country from solving local economic problems with its own unique
monetary policy.
c.
It allows each country in Europe to use its own currency.
d.
Each participating country will still be able to apply its own fiscal policy (tax and government expenditure
decisions).
e.
All of the above are true with respect to a single European monetary policy.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
40. Since 2003, the Fed’s rate on short-term loans to depository institutions is referred to as the
a.
discount rate.
b.
primary credit lending rate.
c.
federal funds rate.
d.
prime rate
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
41. The euro has been adopted by all of the major countries of Western Europe, including Switzerland and the United
Kingdom.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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Page 12
42. Most of the Fed’s income is transferred to the U.S. Department of Justice.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
43. All commercial banks are required to be members of the Fed.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
44. The effects of the credit crisis in 2008 were largely confined to the United States, so central banks in other nations did
not have to reduce their targeted interest rate levels.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
45. Each Federal Reserve district bank is responsible for reporting its regional conditions, and all of these reports are
consolidated to compose the Beige Book.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
Chapter 04: Functions of the Fed
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b.
It specified 14 districts across the United States as well as a city in each district where a Federal Reserve
district bank was to be established.
c.
Congress was motivated to pass the act and establish a central bank because the United States had experienced
several banking panics in the preceding years.
d.
All of the above are true.
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
51. The advisory committee making recommendations to the Fed about economic and banking related issues is the
a.
Community Advisory Council.
b.
Community Depository Institutions Advisory Council.
c.
Federal Advisory Council.
d.
none of the above
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
52. The advisory committee offering views on issues related to credit unions is the
a.
Community Advisory Council.
b.
Community Depository Institutions Advisory Council
c.
Federal Advisory Council.
d.
Federal Open Market Committee
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
53. When the Fed buys Treasury bills as a means of increasing the money supply, it places ____ pressure on their prices
and ____ pressure on their yields.
a.
upward; upward
b.
downward; downward
c.
upward; downward
d.
downward; upward
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
Chapter 04: Functions of the Fed
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Page 15
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
54. To increase the money supply growth, the Fed could
a.
sell government securities in the secondary market
b.
increase the primary credit lending rate.
c.
increase the reserve requirement ratio.
d.
all of the above
e.
none of the above
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
55. When the Fed sells securities, the total funds of commercial banks ____ by the market value of the securities sold by
the Fed. This activity initiated by the FOMC’s policy directive is referred to as a ____ of money supply growth.
a.
increase; loosening
b.
decrease; loosening
c.
increase; tightening
d.
decrease; tightening
e.
none of the above
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
56. ____ includes currency held by the public and checking deposits as well as savings accounts and small time deposits,
money market deposit accounts, and some other items.
a.
M1
b.
M2
c.
M3
d.
None of the above
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
57. The ____ meets with the Board of Governors twice a year and offers views on the economic circumstances and
Chapter 04: Functions of the Fed
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financial services needs of consumers and communities.
a.
b.
c.
d.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
58. The Fed’s primary goal has historically been to add liquidity to the mortgage market by continuously purchasing
mortgage-backed securities.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
59. When the Fed purchases _______, it is attempting to directly stimulate the housing market.
a.
commercial paper
b.
short-term Treasury securities
c.
mortgage-backed securities
d.
consumer loans
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
60. The Fed’s purchases of long-term Treasury securities in recent years were intended to:
a.
reduce long-term interest rates.
b.
reduce interest rates on credit cards and consumer loans
c.
increase the federal funds rate.
d.
restore confidence in the market for these securities.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
Chapter 04: Functions of the Fed
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ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge