Money, Banking, and the Financial System (Hubbard/O’Brien)
Chapter 13 The Federal Reserve and Central Banking
13.1 The Structure of the Federal Reserve System
1) In January 2006, President Bush appointed which of the following to be chair of the Federal
Reserve?
A) Greenspan
B) Bernanke
C) Fukui
D) Trichet
2) 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.
3) Who organized the Bank of the United States?
A) Alexander Hamilton
B) George Washington
C) Andrew Jackson
D) Woodrow Wilson
4) 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
5) 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
6) 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.
7) 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
8) 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.
9) When did the Federal Reserve Act become law?
A) 1836
B) 1913
C) 1936
D) 1951
10) 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
11) 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
12) 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) broad control over most aspects of money and the banking system.
13) How many Federal Reserve districts are there?
A) 1
B) 2
C) 12
D) 50
14) Which of the following cities contains a Federal Reserve bank?
A) Pittsburgh
B) Los Angeles
C) Seattle
D) Dallas
15) Which of the following cities does NOT contain a Federal Reserve bank?
A) Cleveland
B) Dallas
C) Los Angeles
D) Boston
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.
17) 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.
18) 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.
19) 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.
20) 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.
21) 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.
22) 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.
23) 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.
24) 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
25) 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.
26) Federal Reserve district 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.
27) 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
28) 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
29) What percentage of all banks in the United States belong to the Federal Reserve System?
A) 5%
B) 33%
C) 75%
D) 90%
30) 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.
31) 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.
32) 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.
33) 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.
34) 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.
35) 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
36) 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
37) 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.
38) 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
39) The beige book is prepared by
A) district banks.
B) Board of Governors.
C) FOMC staff members.
D) commerce department.
40) 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.
41) 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.
42) The president of which Federal Reserve bank is always a voting member of the Federal Open
Market Committee?
A) Philadelphia
B) Boston
C) Chicago
D) New York
43) 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.