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Multiple Choice – Section 02: The Federal Reserve System
1. Which of the following institutions is a central bank?
a. the Bank of Japan
b. the Bank of England
c. the Federal Reserve System
d. All of the above are correct.
2. Economists call an institution designed to oversee the banking system and regulate the quantity of
money in the economy
a. a central bank.
b. a charter bank.
c. a national bank.
d. a state bank.
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3. The agency responsible for regulating the money supply in the United States is
a. the Comptroller of the Currency.
b. the U.S. Treasury.
c. the Federal Reserve.
d. the U.S. Bank.
4. The agency responsible for regulating the U.S. monetary system is the
a. U.S. Treasury
b. Federal Reserve
c. Department of Justice
d. Federal Trade Commission
5. Which of the following is not a central bank?
a. The Bank of England
b. The Bank of Japan
c. The Bank of America
d. The Federal Reserve
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6. A central bank’s setting (or altering) of the money supply is known as
a. open-market operation.
b. interest rate policy.
c. monetary policy.
d. employment policy.
7. The Federal Reserve
a. was created in 1836.
b. serves as a lender of last resort.
c. was created to facilitate the federal government’s collection of taxes as well as its expenditures.
d. All of the above are correct.
8. The Federal Reserve
a. was created in 1913.
b. is the U.S.’s central bank.
c. has other duties in addition to controlling the money supply.
d. All of the above are correct.
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9. The Federal Reserve was created
a. in 1913 by Congress
b. as a result of the Great Depression
c. according to the standards enforced by NATO
d. by President Kennedy
10. An important function of the U.S. Federal Reserve is to
a. set the debt ceiling.
b. fund Congressional spending.
c. control the supply of money.
d. mint coins.
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11. The members of the Federal Reserve’s Board of Governors
a. are appointed by the president of the U.S. and confirmed by the U.S. Senate.
b. serve six-year terms.
c. are also the presidents of the regional Federal Reserve banks.
d. share power equally, with no governor having any more influence or power than any other
governor.
12. The members of the Federal Reserve’s Board of Governors
a. are elected to office by the public every fourteen years.
b. are nominated by the U.S. Senate banking committee and confirmed by the U.S. house of
representatives.
c. are elected by bankers in each Federal Reserve Region.
d. are appointed by the president of the U.S. and confirmed by the U.S. Senate.
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13. The Board of Governors
a. is chaired by the U.S. Secretary of the Treasury.
b. members are elected by the U.S. public.
c. has 7 members.
d. All of the above are correct.
14. The Federal Reserve Board of Governors
a. rotate each four years.
b. are appointed by the President and confirmed by the Senate.
c. are elected by popular vote.
d. hold lifetime appointments.
15. Who was reappointed Chair of the Board of Governors in 2009 by President Barrack Obama?
a. Ben Bernanke
b. Christina Romer
c. Timothy Geithner
d. Bernie Madoff
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16. Which of the following does the U.S. president appoint and the U.S. Senate confirm?
a. members of the Board of Governors and regional Federal Reserve Bank Presidents.
b. members of the Board of Governors but not the regional Federal Reserve Bank Presidents.
c. the regional Federal Reserve Bank Presidents, but not members of the Board of Governors.
d. neither members of the Board of Governors nor regional Federal Reserve Bank Presidents.
17. The president of each regional Federal Reserve Bank is appointed by
a. the U.S. president with the approval of the Senate.
b. the Board of Governors.
c. the voting members of the Federal Open Market Committee.
d. the board of directors of that regional Federal Reserve Bank.
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18. Which of the following is correct?
a. The Federal Reserve has 14 regional banks. The Board of Governors has 12 members who
serve 7-year terms.
b. The Federal Reserve has 14 regional banks. The Board of Governors has 7 members who
serve 14-year terms.
c. The Federal Reserve has 12 regional banks. The Board of Governors has 12 members who
serve 7-year terms.
d. The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who
serve 14-year terms.
19. The regional Federal Reserve Banks
a. are not allowed to make loans to banks in their region.
b. regulate banks in their regions.
c. have more voting members on the FOMC than does the Board of Governors.
d. are each headed by a member of the Board of Governors.
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20. Which of the following individuals serve a four–year term?
a. the members of the Board of Governors
b. the Chair of the Board of Governors
c. the members of the FOMC
d. All of the above are correct.
21. Which of the following groups is largely responsible for carrying out the Fed’s tasks of regulating
banks and ensuring the health of the financial system?
a. FOMC
b. the Board of Governors
c. the New York Fed
d. the regional Federal Reserve Banks
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22. The Federal Reserve
a. is responsible for conducting the nation’s monetary policy, and it plays a role in regulating
banks.
b. is responsible for conducing the nation’s monetary policy, but it plays no role in regulating
banks.
c. is not responsible for conducting the nation’s monetary policy, and it plays a role in regulating
banks.
d. is not responsible for conducing the nation’s monetary policy, and it plays no role in regulating
banks.
23. Which of the following does the Federal Reserve not do?
a. conduct monetary policy
b. act as a lender of last resort
c. convert Federal Reserve Notes into gold
d. serve as a bank regulator
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24. Which of the following does the Federal Reserve not do?
a. It controls the supply of money.
b. It acts as a lender of last resort to banks.
c. It makes loans to any qualified business that requests one.
d. It tries to ensure the health of the banking system.
25. Which group within the Federal Reserve System meets to discuss changes in the economy and
determine monetary policy?
a. the Board of Governors
b. the FOMC
c. the regional Federal Reserve Bank presidents
d. the Central Bank Policy Commission
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26. The Federal Open Market Committee meets approximately
a. every three weeks
b. every six weeks
c. every 3 months
d. every 6 months.
27. At the Federal Reserve,
a. the nation’s monetary and fiscal policies are made by the Federal Open Market Committee,
which meets about every six weeks.
b. the nation’s monetary and fiscal policies are made by the Federal Open Market Committee,
which meets twice a year.
c. the nation’s monetary policy is made by the Federal Open Market Committee, which meets
about every six weeks.
d. the nation’s monetary policy is made by the Federal Open Market Committee, which meets
twice a year.
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28. At any given time, the voting members of the Federal Open Market Committee include
a. five of the presidents of the regional Federal Reserve banks.
b. the president of the Federal Reserve Bank of New York.
c. the seven members of the Board of Governors.
d. All of the above are correct.
29. Who can vote on Federal Open Market Committee decisions?
a. all of the members of the Board of Governors and all of the Federal Reserve Bank presidents
b. all of the members of the Board of Governors and some of the Federal Reserve Bank
presidents
c. some of the members of the Board of Governors and all of the Federal Reserve Bank
presidents
d. some of the members of the Board of Governors and some of the Federal Reserve Bank
presidents
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30. Which of the following statements regarding the Federal Open Market Committee is correct?
a. Only the five voting regional Fed presidents attend the meetings.
b. All regional Fed presidents attend and vote at the meetings.
c. All regional Fed presidents attend the meetings, but only five get to vote.
d. Regional Fed presidents may neither attend nor vote the meetings.
31. At any meeting of the Federal Open Market Committee, that committee’s voting members consist
of
a. 5 Federal Reserve Regional Bank Presidents and all the members of the Board of Governors.
b. 5 Federal Reserve Regional Bank Presidents and 5 members of the Board of Governors.
c. 12 Federal Reserve Regional Bank Presidents and all the members of the Board of Governors.
d. 12 Federal Reserve Regional Bank Presidents and 5 members of the Board of Governors.
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32. The New York Federal Reserve Bank
a. president always gets to vote at the FOMC meetings.
b. conducts open market transactions.
c. is one of 12 regional Federal Reserve Banks.
d. All of the above are correct.
33. Which of the following is correct concerning the FOMC?
a. the members of the Board of Governors have the majority of the votes
b. the New York Federal Reserve Bank District President is always a voting member
c. all Federal Reserve Bank presidents attend the meetings
d. All of the above are correct.
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34. Which of the following is not correct?
a. The regional Federal Reserve Banks play a role in regulating banks and ensuring the health of
the banking system.
b. The President of the New York Federal Reserve Regional Bank always gets to vote on the
decisions made by the Federal Open Market Committee.
c. U.S. monetary policy is made by the Federal Open Market Committee.
d. The Federal Open Market Committee meets every 12 weeks.
35. Which of the following is not correct?
a. The president of the New York Federal Reserve bank is the only Federal Reserve Regional
Bank President who gets to vote at every meeting of the Federal Open Market Committee.
b. The Fed’s policy decisions influence the economy’s rate of inflation in the short run and the
economy’s employment and production in the long run.
c. The Fed’s primary monetary policy tool is open–market operations.
d. All of the above are correct.
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36. All of the presidents of the regional Federal Reserve banks
a. attend each FOMC meeting.
b. have voting rights at each FOMC meeting.
c. are appointed by the president of the U.S. and confirmed by the U.S. Senate.
d. All of the above are correct.
37. Which of the following is not a reason the New York Federal Reserve Bank president always
gets to vote at the Federal Open Market Committee meetings?
a. New York is the traditional financial center of the U.S. economy.
b. All Fed purchases and sales of bonds go through the New York Fed’s trading desk.
c. New York has higher population than other cities in the U.S.
d. All of the above are reasons.
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38. Which of the following entities actually executes open-market operations?
a. the Board of Governors
b. the New York Federal Reserve Bank
c. the Federal Open Market Committee
d. the Open Market Committees of the regional Federal Reserve Banks
39. All Fed purchases and sales of
a. corporate stocks and bonds are conducted at the New York Fed’s trading desk.
b. government bonds are conducted at the New York Fed’s trading desk.
c. real estate and other real assets are conducted by the Federal Open Market Committee.
d. All of the above are correct.
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40. The Fed has the power to increase or decrease the number of dollars in the economy through the
decisions of
a. the Board of Governors.
b. the FOMC.
c. the regional Federal Reserve Bank presidents.
d. the U.S. Treasury.
41. When conducting an open-market sale, the Fed
a. buys government bonds, and in so doing increases the money supply.
b. buys government bonds, and in so doing decreases the money supply.
c. sells government bonds, and in so doing increases the money supply.
d. sells government bonds, and in so doing decreases the money supply.
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42. When conducting an open-market purchase, the Fed
a. buys government bonds, and in so doing increases the money supply.
b. buys government bonds, and in so doing decreases the money supply.
c. sells government bonds, and in so doing increases the money supply.
d. sells government bonds, and in so doing decreases the money supply.
43. An open-market purchase
a. increases the number of dollars and the number of bonds in the hands of the public.
b. increases the number of dollars in the hands of the public and decreases the number of bonds in
the hands of the public.
c. decreases the number of dollars and the number of bonds in the hands of the public.
d. decreases the number of dollars in the hands of the public and increases the number of bonds in
the hands of the public.