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CHAPTER 2
TRUE/FALSE QUESTIONS
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liability is currency outside banks.
year nonrenewable terms. Each Board member is appointed by the President and
confirmed by the Senate.
could issue a policy directive to the Federal Reserve Board Trading desk to
purchase U.S. government securities.
MULTIPLE-CHOICE QUESTIONS
Reserve banks equals:
a. 9.
b. 7.
c. 14.
d. 12.
a. coordinate an efficient payments mechanism.
b. provide an elastic money supply.
c. serve as lender of last resort.
d. all of the above
a. set monetary policy
b. supervise and examine member banks.
c. guarantee excess reserves to National Banks.
d. enforce margin requirements
Use this data to answer questions 4-6:
Total Reserves $80,000,000; Reserve Requirement 5%; Total Deposits $700,000,000.
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a. $ 4,000,000
b. $ 45,000,000
c. $ 70,000,000
d. not ascertainable
a. an arguable underutilization of resources, at least for the moment
b. an excess reserve position
c. a near-term likelihood that loans and deposits will expand
d. all of the above
a. an open market sale by the Fed
b. a lowering of reserve requirements by the Fed
c. a new loan at the Discount Window by the Fed
d. an open market purchase by the Fed
a. Federal Reserve notes.
b. U.S. government securities.
c. loans to member banks.
d. float.
a. the Comptroller of the Currency.
b. national banks.
c. Federal Reserve banks.
d. its own required reserves
a. for clearing checks
b. to satisfy reserve requirements
c. to earn interest
d. a and b
a. the Fed.
b. the Treasury.
c. the bank.
d. none of the above
a. is the “lag time” required for monetary policy to take effect
b. represents a net extension of credit by the Fed, which increases bank reserves.
c. represents a net liability of the Fed.
d. is DACI minus CIPC.
a. depository institutions deposits in the Fed decrease.
b. depository institutions deposits in the Fed increase.
c. the deposit balance of the security dealer in its bank decreases.
d. both a and c above.
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a. Lowering the Discount Rate
b. Lowering reserve requirements
c. Buying U.S. Government securities on the open market
d. None of the above
a. Buy securities on the open market
b. Lower the Discount Rate
c. Lower reserve requirements
d. Any of the above would be suitable for this purpose.
a. National banks
b. State banks
c. Savings-and-loan associations
d. All of the above
a. changing the discount rate.
b. open market operations.
c. adjusting reserve requirements.
d. changes in the Federal Funds rate.
a. Important and autonomous components of a “decentralized central bank”
b. Important components of the Fed, but no longer very autonomous
c. Neither important nor autonomous
d. All permanently voting members of the FOMC
a. decrease the money supply.
b. increase security prices.
c. increase interest rates.
d. decrease credit availability.
a. Second Bank of the United States, Federal Reserve Act, Crash of 1907
b. Crash of 1907, Federal Reserve Act, National Banking Acts
c. First Bank of the United States, Crash of 1907, National Banking Acts
d. Second Bank of the United States, National Banking Acts, Federal Reserve Act
a. open market operations.
b. change in reserve requirements.
c. Reg Z.
d. discount rate policy
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a. Margin requirements
b. Interest rate disclosures on deposits
c. Investigation and prosecution of counterfeiting
d. Bank holding companies
a. to control the money supply
b. to safeguard the national payment system
c. to establish a more rigorous bank supervisory system
d. all of the above
a. a system for federal chartering of banks.
b. a system for controlling bank note issuance.
c. a source of liquidity for the banking system.
d. the beginning of demand deposit accounts.
a. decrease the monetary base
b. increase the monetary base
c. have no effect on the monetary base.
d. none of the above
a. coordinate an efficient payments mechanism.
b. provide an elastic money supply.
c. regulate the financial system.
d. all of the above.
a. international events affecting U.S. financial institutions.
b. periods of severe economic and financial problems in the U.S. economy.
c. voter changing the majority party in Congress.
d. recommendations of presidential commissions.
a. President, Federal Reserve Bank of New York
b. Chairman, Board of Governors
c. President, Federal Reserve Bank of Los Angeles
d. Members of the Board of Governors
members of the Federal Open Market Committee, and ________ Federal Reserve Banks.
a. 12; 7; 12
b. 7; 14; 12
c. 14; 12; 12
d. 7; 12; 12
a. San Francisco
b. Dallas
c. Washington, DC
d. Kansas City
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a. decreases bank reserve deposits in the Fed.
b. increases bank reserve deposits in the Fed.
c. has no impact upon bank reserves deposits in the Fed.
d. reduces the net loan granted by the Fed to member banks.
a. is a common way for depository institutions to raise loanable funds
b. relates to the Fed’s “lender of last resort” function
c. is a relatively recent innovation in the design of the Federal Reserve System
d. is available only during emergencies
a. regulate national banks
b. print currency
c. establish the nation’s monetary policy
d. stimulate the economy
a. The U.S. Treasury securities
b. Depository institution reserves
c. Currency outside banks
d. Vault cash of commercial banks
e. Gold and foreign exchange
excess reserves. The total change in deposits (with no drains) would be
a. $3,000 million
b. $12,857 million
c. $13,652 million
d. $15,795 million
a. Federal Deposit Insurance Corporation
b. Office of Comptroller of the Currency
c. Federal Reserve System
d. Office of Thrift Supervision
a. Banks charge each other on loans of excess reserves
b. Banks charge to lend foreign exchange to customers
c. The Federal Reserve charges on emergency loans to commercial banks
d. Banks charge for loans to corporate customers
ESSAY QUESTIONS
1. Explain why the Federal Reserve is less “independent” than it appears to be.
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2. Compare and contrast the “tools of monetary policy” in terms of their relative usefulness.
3. How has the power structure of the Fed changed since 1913?
4. Assume the Fed pays $1000 for a government bond on the open market. With a 5% reserve
requirement, what is the theoretical ultimate addition to the money supply, and why?
5. Why is changing the discount rate not a viable tool for conducting monetary policy?
6. What are margin requirements, and why do they exist?
7. What are the bodies of the Federal Reserve System?
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