9) Control of the nation’s quantity of money is handled by
A) Congress.
B) the Federal Reserve System.
C) the President of the United States.
D) Congress, the Federal Reserve System, and all commercial banks.
10) Monetary policy is conducted
A) only by the Federal Reserve.
B) by the Federal Reserve and the President of the United States.
C) by the Federal Reserve, the President of the United States, and Congress.
D) by the Federal Reserve with veto power residing with the President of the United States.
11) When the Fed is ________ it is ________.
A) adjusting the amount of money in circulation; issuing government bonds
B) issuing government bonds; conducting monetary policy
C) adjusting the amount of money in circulation; conducting monetary policy
D) regulating the nation’s financial institutions; conducting monetary policy
12) Controlling the quantity of money and interest rates to influence aggregate economic activity
is called
A) foreign policy.
B) monetary policy.
C) fiscal policy.
D) bank antitrust policy.
13) The interest rate banks charge other banks for overnight loans is
A) the federal funds rate.
B) targeted by the FDIC.
C) higher than interest rates for securities and loans.
D) lower than interest rates for loans, but higher than interest rates for securities.
14) The nation is divided into ________ Federal Reserve districts, each having a Federal Reserve
Bank.
A) 10
B) 50
C) 12
D) 7
15) The Federal Reserve has ________ regional Federal Reserve Banks and ________ members
of the Board of Governors.
A) 12; 12
B) 12; 7
C) 7; 12
D) 7; 7
16) Regional Federal Reserve Banks
A) are located in each of the 50 states.
B) are run by the governors of the states in which they are located.
C) provide general banking services to the public.
D) None of the above answers is correct.
17) Which of the following institutions is NOT part of the structure of the Federal Reserve
system?
A) The Federal Open Market Committee
B) The Federal Reserve Banks
C) The Board of Governors
D) The Federal Government
18) Members of the Federal Reserve System’s Board of Governors
A) are elected for life.
B) hold 14-year staggered terms.
C) are a special subcommittee of the Senate.
D) are elected at large by district banks.
19) The Board of Governors of the Federal Reserve System consists of
A) 7 members appointed by Congress and 7 appointed by the President.
B) the presidents of each regional Federal Reserve bank.
C) 12 members appointed by Congress.
D) 7 members appointed by the President of the United States.
20) The Board of Governors is the
A) Presidents of the 12 regional banks of the Federal Reserve.
B) 7-member group that oversees the Federal Reserve.
C) 12-member monetary policy committee of the Federal Reserve.
D) 50-member organization of state banking regulators of the Federal Reserve.
21) The Board of Governors of the Federal Reserve System is
A) appointed by the Congress.
B) elected by the public.
C) appointed by the President of the United States and confirmed by the U.S. Senate.
D) elected by members of the American Banking Association.
22) This group consists of seven members appointed by the President of the United States for 14-
year terms
A) the presidents of the Federal Reserve Banks.
B) the members of the Federal Open Market Committee.
C) the members of the Board of Governors of the Federal Reserve System.
D) None of the above answers are correct.
23) The Board of Governors of the Federal Reserve System does NOT
A) consist of seven members with fourteen-year terms.
B) include the presidents of the twelve Federal Reserve Banks.
C) utilize a system of rotations so that a position comes open every two years.
D) consist of members whose appointments have been approved by the Senate.
24) The Federal Open Market Committee
A) consists of the Fed chairman and the 12 regional bank presidents.
B) is the main policy-making organ of the Federal Reserve.
C) is headed by the president of the New York Federal Reserve Bank.
D) meets every week to review the state of the economy.
25) The Federal Open Market Committee (FOMC)
A) consists of the 12 districts of the Federal Reserve.
B) is the 7-member group that oversees the Federal Reserve.
C) is the 12-member monetary policy committee of the Federal Reserve.
D) is the 50-member organization of state banking regulators of the Federal Reserve.
26) The Federal Open Market Committee (FOMC) is composed of
A) representatives from the governors of all 50 states.
B) Presidents of 5 Federal Reserve regional banks and the Board of Governors.
C) the 12 Presidents of the Federal Reserve regional banks.
D) the Board of Governors, the Vice-President of the United States, and the Secretary of
Treasury for the United States.
27) The Federal Open Market Committee (FOMC)
A) determines the government’s tax policy.
B) determines the Fed’s monetary policy.
C) oversees all transactions on the stock market.
D) lends to the least credit-worthy customers who otherwise can’t get loans.
28) The Federal Open Market Committee consists of the
A) Federal Reserve chairman and the other six members of the Board of Governors.
B) Federal Reserve branch bank presidents.
C) Federal Reserve chairman and the Federal Reserve branch bank presidents.
D) Federal Reserve chairman, the other six members of the Board of Governors, and five of the
Federal Reserve branch bank presidents.
29) The main policy-making organ of the Federal Reserve System is
A) the Board of Governors.
B) the Federal Reserve branch banks.
C) the Federal Reserve chairman and the Federal Reserve branch bank presidents.
D) the Federal Open Market Committee.
30) Which part of the Federal Reserve System meets every 6 weeks to determine the nation’s
monetary policy?
A) Federal Open Market Committee
B) Board of Governors
C) the Federal Reserve Banks
D) depository institutions such as commercial banks
31) Which of the following is TRUE regarding the Federal Open Market Committee (FOMC)?
A) It is the main policy-making group of the Congress.
B) Representatives from each state control its operation.
C) It meets about every six weeks to decide on monetary policy.
D) Both answers A and C are correct.
32) The monetary policy-making body of the Federal Reserve is the
A) Federal Open Market Committee.
B) New York Federal Reserve Bank.
C) regional Federal Reserve Banks.
D) Board of Governors.
33) Which Federal Reserve Bank president is always on the Federal Open Market Committee?
A) New York
B) Chicago
C) St. Louis
D) Boston
34) The Federal Open Market Committee of the Federal Reserve System is responsible for
A) maintaining competition among the nation’s commercial banks.
B) determining monetary policy actions.
C) establishing the official price of gold.
D) defining the foreign exchange value of the dollar.
35) The Federal Open Market Committee
A) meets weekly to set Fed policy.
B) has 7 voting members.
C) always includes the president of the Federal Reserve Bank of New York as a member.
D) does not include any members of the Board of Governors.
36) The main policy-making organ of the Federal Reserve System is the
A) Board of Governors.
B) Federal Reserve Bank presidents.
C) Federal Open Market Committee.
D) Joint Congressional Committee on Monetary Policy.
37) The main policy-making body of the Federal Reserve System is the
A) Board of Governors.
B) Federal Open Market Committee.
C) Federal Reserve Banks.
D) member commercial banks.
38) The main policy-making organization of the Federal Reserve System is the ________.
A) U.S. Mint
B) U.S. Treasury
C) Joint Congressional Committee on Monetary Policy
D) Federal Open Market Committee
39) The main policy designer of the Federal Reserve system is the
A) 12 district banks.
B) President and Congress.
C) Federal Open Market Committee.
D) Council of Economic Advisors.
40) The Chairman of the Fed is appointed by ________.
A) the Board of Governors of the Federal Reserve System
B) the President of the United States
C) Congress
D) the U.S. Senate
41) The current chairman of the Federal Reserve System is
A) Ben Bernanke.
B) Alan Greenspan.
C) President Obama.
D) Janet Yellen.
42) The chairman of the Federal Reserve’s Board of Governors
A) controls the agenda of the Federal Open Market Committee meetings.
B) is the main point of contact between the Fed and the President of the U.S.
C) receives frequent background briefings on monetary policy issues from a large staff of
economists and technical experts.
D) All of the above answers are correct.
43) Most of the day-to-day power in monetary policy decisions lies with
A) the President of the United States.
B) the Senate Banking Committee.
C) the chairman of the Board of Governors.
D) large commercial banks.
44) On the Fed’s balance sheet, assets include
A) reserves of depository institutions and mortgage-backed securities.
B) U.S. government securities and mortgage-backed securities.
C) currency and reserves of depository institutions.
D) currency and mortgage-backed securities.
45) Which of the following is an asset of the Fed?
A) Mortgage-backed securities
B) currency
C) reserves of depository institutions
D) Both answers B and C are correct.
46) Which of the following is NOT an asset of the Federal Reserve?
A) currency
B) government securities
C) mortgage-backed securities
D) None of the above are correct because they are all assets of the Federal Reserve.
47) Which of the following is NOT an asset of the Federal Reserve System?
A) mortgage-backed securities
B) reserves of depository institutions
C) U.S. government securities
D) None of the above are correct because they are all assets of the Federal Reserve.
48) Which of the following is a liability of the Federal Reserve?
A) currency
B) mortgage-backed securities
C) U.S. government securities
D) U.S. coins
49) Which of the following is a liability on the balance sheet of the Federal Reserve System?
A) currency
B) U.S. government securities
C) mortgage-backed securities
D) None of the above are correct because they are all assets of the Federal Reserve.
50) The monetary base is the sum of
A) U.S. Treasury notes and other government securities.
B) currency and reserves of depository institutions.
C) foreign and domestic deposits at the Fed.
D) currency and checkable deposits at depository institutions.
51) The monetary base is the sum of
A) currency and reserves of depository institutions.
B) currency, travelers’ checks, and checking deposits.
C) currency only.
D) M1 and M2.
52) The monetary base consists of
A) the quantity of money.
B) currency and reserves of depository institutions’.
C) demand deposits and vault cash.
D) government securities held by the Fed.
53) The monetary base is
A) currency and reserves of depository institutions.
B) currency minus depository institutions’ reserves.
C) depository institutions’ reserves minus Federal Reserve notes.
D) the money borrowed by banks from other banks.
54) The monetary base does NOT include
A) currency.
B) reserves of depository institutions.
C) checking accounts at commercial banks.
D) commercial banks’ reserves.
55) Which of the following is NOT part of the monetary base?
A) currency
B) reserves of depository institutions
C) the public’s checking deposits at commercial banks
D) commercial banks’ reserves.
56) The sum of currency and reserves of depository institutions is the ________.
A) reserves of the Fed
B) assets of the Fed
C) monetary base
D) vault cash
57) Which of the following is NOT a part of the monetary base?
A) Chemical Bank’s deposits of reserves at the Fed
B) First Bank’s required reserves held at the Federal Reserve
C) currency
D) U.S. government securities owned by the Fed
58) Which of the following is a tool that is used by the Fed to control the quantity of money?
A) open market operations
B) excess reserves
C) government expenditure multiplier
D) real interest rate
59) Which of the following is NOT a monetary policy tool of the Federal Reserve?
A) changes in required reserves
B) last resort loans
C) deposit insurance
D) open market operations
60) Which of the following is NOT one of the Fed’s monetary policy tools?
A) last resort loans
B) the required reserve ratio
C) the income tax rate
D) buying and selling U.S. government securities
61) Which of the following tools is NOT a policy tool of the Fed?
A) last resort loans
B) the tax rate on interest income
C) the reserve ratio
D) open market operations
62) Which of the following is NOT a monetary policy tool?
A) last resort loans
B) open market operations
C) required reserve ratio
D) federal funds rate
63) The tools at the disposal of the Fed for changing the quantity of money do NOT include
A) open market operations.
B) changing the required reserve ratio.
C) changing discount rates.
D) increasing the number of commercial banks.
64) Federal Reserve policy tools include all of the following EXCEPT
A) excess reserve ratios.
B) required reserve ratios.
C) last resort loans.
D) open market operations.
65) Federal Reserve policy tools include all of the following EXCEPT
A) desired reserve ratios.
B) required reserve ratios.
C) the discount rate.
D) open market operations.
66) The minimum percentage of deposits that a depository institution must hold and cannot use
for lending is known as the
A) minimum rate.
B) required reserve ratio.
C) money multiplier.
D) discount rate.
67) Reserve requirements are the
A) minimum percentages of deposits that banks must hold as reserves.
B) minimum amount of an owner’s financial resources that must be placed in a depository
institution.
C) rules covering the types of deposits that banks may offer.
D) rules covering the types of assets that banks may purchase.
68) The fraction of deposits that banks are required to keep is known as the
A) discount rate.
B) required reserve ratio.
C) deposit multiplier.
D) money multiplier.
69) The required reserve ratio is the ratio of reserves to ________ required by banking
regulations.
A) deposits
B) loans
C) profits
D) currency
70) The required reserve ratio
A) is the amount of money that banks require borrowers to reserve in their accounts.
B) is the fraction of a bank’s total deposits that is required to be held in reserves.
C) increases when withdrawals from a bank are made.
D) is higher for banks that make riskier loans.
71) Which of the following is true regarding the required reserve ratio?
A) The ratio determines the legally required amount of reserves a bank must hold.
B) The ratio determines the amount of excess reserves a bank must hold.
C) The ratio is only enforced against banks that are operating in a risky manner.
D) None of the above answers is correct.
72) Required reserves for a commercial bank
A) are the minimum reserves that a bank must hold to back its deposits.
B) are the reserves that a bank plans to hold in the bank’s vault.
C) are only the money used by the bank tellers.
D) consist only of the bank’s deposits at the Fed.
73) The required reserve ratio ranges from
A) 0 to 3 percent.
B) 0 to 7 percent.
C) 3 to 30 percent.
D) 0 to 10 percent.
74) Changing which of the following is a Federal Reserve monetary policy tool?
A) required reserve ratios
B) desired reserve ratios
C) excess reserve ratios.
D) gold and foreign reserve ratios
75) The discount rate is the interest rate
A) that banks charge their best customers.
B) that the Fed charges on its last resort loans.
C) that banks charge each other.
D) that bank insurers pay on insured deposits.
76) When the Federal Reserve lends reserves to depository institutions, it charges them interest.
That interest rate is called the
A) federal funds rate.
B) loan rate.
C) prime rate.
D) discount rate.
77) The interest rate that the Fed charges when it makes a last resort loan is the ________ rate.
A) discount
B) short-term
C) reserve
D) federal funds
78) The discount rate is the interest rate that
A) the Federal Reserve charges when it loans reserves to depository institutions.
B) is the lowest rate that banks will charge when lending to their best customers.
C) the Federal Reserve charges when it loans to the U.S. Government.
D) banks charge when they lend to each other.
79) The discount rate is the interest rate
A) paid on time deposits.
B) paid on funds banks borrow from other banks.
C) paid on funds that depository institutions borrow from the Federal Reserve.
D) that banks charge their “best” customers.
80) The ________ rate is the interest rate at which the Fed lends ________ to depository
institutions.
A) discount rate; reserves
B) discount rate; gold
C) federal funds rate; deposits
D) federal funds rate; reserves
81) When the Fed wants to undertake open market operations, it
A) can require all commercial banks to buy from or sell to it.
B) can require all member banks to buy from or sell to it.
C) buys or sells securities in the open market.
D) buys securities from or sells securities to the federal government.
82) An open market operation occurs when ________ buys or sells securities ________.
A) the Federal Reserve System; from or to the federal government
B) the Federal Reserve System; in the open market
C) a commercial bank; from or to the federal government
D) a commercial bank; from or to the public
83) An open market operation involves
A) the Federal Reserve’s purchase or sale of securities.
B) the Federal Reserve’s issuance of new stock.
C) changing federal income tax rates.
D) raising the debt limit of the United States.
84) When the Fed sells government securities to a bank, how are the Fed’s assets affected?
A) The amount of the Fed’s government securities decreases.
B) The amount of the Fed’s government securities increases.
C) The amount of reserves held at the Fed increases.
D) The amount of reserves held at the Fed decreases.
85) An open market purchase of securities by the Fed
A) increases banks’ reserves and decreases banks’ securities.
B) decreases banks’ reserves and increases banks’ securities.
C) decreases banks’ total assets.
D) involves a bank purchasing government securities from the Fed.
86) An open market sale of securities by the Fed
A) decreases banks’ reserves and increases banks’ securities.
B) increases banks’ reserves and decreases banks’ securities.
C) increases banks’ total assets.
D) involves a bank selling government securities to the Fed.
87) In an open market purchase, the Fed ________ government securities, which ________ bank
reserves.
A) buys, increases
B) buys, decreases
C) sells, increases
D) sells, decreases
88) The Fed buys securities and gives the bank a check for the amount. After the check has
cleared,
A) reserves remain unchanged because the increase of reserves at the bank are offset by an
increase in reserves at the Fed.
B) reserves have decreased by the amount of the check because the Fed pays for the check by
decreasing the bank’s deposits at the Fed.
C) reserves have increased by the amount of the check because the Fed pays for the check by
increasing the amount of the bank’s deposits with the Fed.
D) reserves have increased by the amount of the reserves multiplied by the required reserve ratio,
and the quantity of money increases by the difference between the amount of the check and the
increase in the reserves.