44) The Banking Acts of 1933 and 1935
A) established the Federal Reserve System.
B) increased central control of the Federal Reserve System.
C) eliminated the authority of the Board of Governors to set reserve requirements.
D) made the Secretary of the Treasury a member of the Board of Governors.
45) Who are the members of the Financial Stability Oversight Council?
46) What is the primary objective of the Financial Stability Oversight Council?
47) How did the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 affect
the Fed’s
48) What was the original intent of the Federal Reserve Act of 1913?
49) What are the roles of Federal Reserve district banks?
50) How do individual become members of the Board of Governors?
51) Who serves as voting members of the Federal Open Market Committee (FOMC)?
52) What are the three books to which the FOMC has access and what information is included in
each?
53) What is included in the public statement released by the FOMC following the conclusion of
its meeting?
13.2 How the Fed Operates
1) During World War II
A) the Board of Governors was temporarily disbanded.
B) the Fed was not allowed to make discount loans.
C) the Fed agreed to hold interest rates on short-term Treasury securities at low levels.
D) the Fed agreed not to buy Treasury securities.
2) In the early post-war years, the Fed was reluctant to continue its wartime agreement with the
Treasury because it believed the result would be
A) recession.
B) inflation.
C) higher taxes.
D) lower taxes.
3) Which of the following statements is correct?
A) The Fed is fully insulated from external pressures due to the long terms that members of the
Board of Governors serve.
B) The Fed is fully insulated from external pressures because it does not need to go through the
normal congressional appropriations process.
C) The Fed is fully insulated from external pressures because it has a constitutional mandate.
D) The Fed is only partially insulated from external pressures.
4) The Fed does not have to go through the normal congressional appropriations process because
A) its expenses are very small.
B) it was given enough funds at the time of its founding to provide for its expenses indefinitely.
C) it is self financing.
D) it is not part of the legislative branch of the federal government.
5) What is the main reason the Fed operates in a political arena?
A) It lacks a constitutional mandate.
B) The members of the Board of Governors must run for reelection every fourteen years.
C) The members of the Board of Governors are typically prominent politicians.
D) It is under the direct control of Congress.
6) All of the following help make the Fed independent of the political process EXCEPT
A) financial independence.
B) chair of Fed receives a lifetime appointment.
C) Board members receive a long, nonrenewable appointment.
D) Board members’ terms expire at different times, reducing the possible number of appointees
by any one president.
7) Most of the Fed’s earnings come from
A) fees charged to financial institutions for check clearing.
B) interest on the securities it holds.
C) interest on discount loans.
D) congressional appropriations.
8) Which of the following statements is correct?
A) The Fed has difficulty covering its normal expenses, but is reluctant to ask Congress for
money.
B) The Fed is dependent on the annual appropriations it receives from Congress.
C) The Fed’s profits are substantial, even when compared to the largest U.S. corporations.
D) At one time the Fed made substantial profits, but falling interest rates have greatly reduced
them.
9) The public interest view of Fed motivation holds that the Fed acts in the interest of
A) the general public.
B) banks.
C) Congress.
D) itself.
10) Which of the following appears to be evidence against the public interest view of the Fed’s
motivation?
A) The conflict with the Treasury over interest rate fixing during World War II.
B) The failure of the Fed to emphasize the goal of price stability.
C) The unwillingness of the Fed to turn over its excess profits to the Treasury.
D) The independence of Fed chairmen from the authority of the President.
11) The principal-agent view of Fed motivation predicts that the Fed acts
A) to promote the interests of the general public.
B) to promote the interests of the Fed’s principal the President of the United States.
C) in order to increase its power, influence, and prestige.
D) in order to make sure its agents commercial banks carry out its wishes.
12) The political business cycle theory predicts that
A) the Fed acts to promote the interests of the general public.
B) the Fed acts to stimulate economic activity before an election.
C) the President’s appointments to the Board of Governors will usually be politicians.
D) political factors over which the Fed has no control are most important in explaining the
business cycle.
13) The facts show that the political business cycle theory
A) does a good job of explaining monetary policy during presidential election years.
B) is unable to explain monetary policy during presidential election years.
C) doesn’t generally support the political business cycle theory.
D) explains monetary policy best during years in which the President is running for reelection.
14) Why might Congress benefit from the Fed being self-financed?
A) Self-financing increases Congressional control over the Fed.
B) Self-financing reduces the Fed’s exposure to external pressures.
C) Self-financing gives the Fed an incentive to expand the money supply, which ultimately
results in Congress having additional funds to spend.
D) Congress does not benefit from the Fed being self-financed; Congress is obliged by the
Constitution to allow the Fed to be self-financed.
15) The issue of Fed independence is most often raised by
A) disagreement over the role the Fed should play in managing monetary policy.
B) the Fed’s refusal to carry out the wishes of the President.
C) the Fed’s refusal to carry out the wishes of Congress.
D) the public’s negative reaction to Fed policy.
16) The main argument in favor of Fed independence is that
A) interest rates would probably be lower if Congress controlled the Fed; thus hurting savers.
B) the Constitution requires it.
C) monetary policy is too important and too technical to be determined in the political arena.
D) congressional control of the Fed was tried during the 1960s and did not work well.
17) The main argument against Fed independence is that
A) in a democracy elected officials should make public policy.
B) monetary and fiscal policy would be easier to coordinate if the Fed were not independent.
C) the Fed has proven irresponsible on many occasions.
D) congressional control was tried during the 1960s and it worked well.
18) How are the operations of the Federal Reserve financed?
19) In what ways is the Fed independent of the political process?
20) What are the limitations to the Fed’s independence?
21) What are the primary arguments for and against the independence of the Fed?
1) Apart from the United States, in countries where central bank board members serve fixed
terms of office,
A) none have terms as long as fourteen years.
B) many serve for life or good behavior.
C) all have terms longer than fourteen years.
D) the head of the central bank rarely has a term longer than one year.
2) Which central bank gained the power to set interest rates independent of the government in the
late 1990s?
A) Bank of England
B) Bank of Canada
C) Bank of China
D) Federal Reserve Board
3) Who sets the inflation target for the Bank of England?
A) Prime Minister
B) Chancellor of the Exchequor
C) head of the monetary policy committee
D) majority vote of the monetary policy committee
4) Which of the following is the most common goal for central banks of industrialized countries?
A) high employment
B) high economic growth
C) low interest rates
D) low inflation
5) Generally,
A) countries with the most independent central banks have the lowest inflation rates.
B) countries with the least independent central banks have the lowest inflation rates.
C) countries without central banks have the lowest inflation rates.
D) the degree of independence of a country’s central banks has little to do with its inflation rate.
6) Which of the following countries does not have an official inflation target?
A) Canada
B) United Kingdom
C) New Zealand
D) United States
7) Which of the following does not serve on the Governing Council of the European Central
Bank?
A) governors of the national central banks
B) members of the executive board
C) finance ministers of each country
D) chair of the executive board
8) Which of the following is the mandate of the European Central Bank?
A) high economic growth
B) price stability
C) low unemployment
D) a fixed exchange rate
9) Which country was least supportive of expansionary policy by the European Central Bank
during the Financial Crisis of 2007-2009?
A) Spain
B) Portugal
C) Greece
D) Germany
10) In 2010, doubts were raised about the debt of all of the following countries EXCEPT
A) Ireland.
B) Greece.
C) Poland.
D) Portugal.
11) What was the dilemma that faced the European Central Bank in response to the sovereign
debt crisis of 2010?
12) What constitutes meaningful independence of a central bank?