Chapter 16
The Structure of Central Banks: The Federal Reserve and the European Central Bank
Multiple-Choice Questions
1.The Federal Reserve was created in:
a. 1929.
b. 1913.
c. 1909.
d. 1945.
2. The Federal Reserve System is composed of:
a. five branches with clear responsibilities.
b. six branches with overlapping responsibilities.
c. three branches with overlapping responsibilities.
d. twelve branches with clear responsibilities.
3. Member banks of the Federal Reserve System include:
a. only nationally chartered banks.
b. all state chartered banks with assets exceeding $100 million.
c. nationally chartered banks and state chartered banks that decide to join.
d. nationally chartered banks and all state chartered banks.
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4. The three branches of the Federal Reserve System include each of the following, except:
a. the Board of Governors.
b. the Federal Deposit Insurance Corporation.
c. the Federal Open Market Committee.
d. the twelve regional Federal Reserve Banks.
5. Considering state chartered banks:
a. most elect to join the Federal Reserve System.
b. those with assets exceeding $100 million must join the Federal Reserve System.
c. most elect not to join the system.
d. only those that join the system must abide by reserve requirements.
6. Prior to 1980:
a. member banks of the Federal Reserve did not have to hold non-interest-bearing reserve
deposits at the Fed.
b. nonmember banks had to hold non-interest-bearing reserve deposits at the Fed.
c. nonmember banks did not have to hold non-interest-bearing reserve deposits at the Fed.
d. all banks, member or not, had to hold reserve deposits at the Fed in a non-interest-bearing
account.
7. Currently the requirement of holding a non-interest-bearing reserve account at the Fed must be
met by:
a. all banks, member or not.
b. only member banks.
c. member banks and nonmember banks over $100 million in assets.
d. only nationally chartered banks.
8. One reason it took so long to have a central bank in the United States is that:
a. it wasn’t needed.
b. states feared centralization of power.
c. state currencies worked fine.
d. all of the answer options are correct.
9. The number of regional Federal Reserve Banks is:
a. nine.
b. seven.
c. five.
d. twelve.
10. The largest of the regional Federal Reserve Banks is located in:
a. Washington D.C.
b. San Francisco since it serves almost one-third of the country.
c. New York City.
d. Kansas City.
11. The Federal Reserve Bank of New York is unique from other Reserve banks because it:
a. is the only regional Bank that serves just one state.
b. is the only regional Bank located in a financial center.
c. is where the Federal Reserve System’s portfolio is managed.
d. is the oldest and therefore the largest.
12. The lines drawn to establish Federal Reserve Districts were based on:
a. solely population distribution in 1914.
b. solely economic forces that existed in 1914.
c. economic and political forces that existed in 1914.
d. economic and political forces as well as population distribution in 1914.
13. Considering the Federal Reserve Districts, which of the following is true?
a. With the exception of New York, no district coincides with a single state.
b. No district coincides with a single state.
c. Some districts are made up of single states.
d. The districts are divided with equal population.
14. The Reserve Banks of the Federal Reserve System are owned by:
a. the taxpayers in their districts.
b. the U.S. Treasury.
c. the Board of Governors.
d. the commercial banks in their districts.
15. How many members belong to the board of directors for each of the Reserve Banks of the
Fed?
a. Seven
b. Nine
c. Twelve
d. F
ourtee
n
16. Each of the Reserve Banks has a president who is:
a. appointed by the bank’s board of directors but approved by the board of governors.
b. appointed by the board of governors but approved by the bank’s board of directors.
c. elected by the commercial banks in their district.
d. selected from the Board of Directors.
17. Each president of a Reserve Bank serves for a:
a. fourteen-year term.
b. five-year term.
c. seven-year term.
d. two-year renewable term.
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18. Which of the following is a false statement about the structure of the Federal Reserve
System?
a. Banker and business interests are reflected
b. State and regional interests are reflected
c. Government (public) and private interests are reflected
d. Exporter and importer interests are reflected
19. In its role as bank for the U.S. government, the Federal Reserve performs all of the following
services, except:
a. issuing new currency.
b. making discount loans.
c. maintaining the U.S. Treasury‘s bank account.
d. managing U.S. Treasury borrowings.
20. In its role as the bankers’ bank, the Federal Reserve performs all of the following services,
except:
a. collecting and making available data on business conditions.
b. making discount loans.
c. managing U.S. Treasury borrowings.
d. clearing paper checks and transferring funds electronically.
21. Which of the following cities does not have a Federal Reserve Bank located in it?
a. Denver
b. Atlanta
c. San Francisco
d. Chicago
22. Which of the following cities has a Federal Reserve Bank located in it?
a. Denver
b. Philadelphia
c. Detroit
d. Miami
23. The Federal Reserve District that covers the largest geographic area is serviced by the Bank
located in:
a. Chicago.
b. Richmond.
c. Atlanta.
d. San Francisco.
24. The services the Federal Reserve provides to foreign central banks and other international
organizations are handled:
a. directly by the Board of Governors in Washington D.C.
b. by all of the Reserve Banks.
c. only by the Reserve Bank in New York.
d. only by the Reserve Bank in San Francisco.
25. The largest Federal Reserve District geographically is serviced by:
a. the Reserve Bank in San Francisco.
b. the Reserve Bank in Chicago.
c. the Reserve Bank in New York.
d. the districts are divided fairly equally.
26. Buying and selling U.S. Treasury Securities for the Fed’s own portfolio is called:
a. managing the float.
b. discount buying.
c. open market operations.
d. reserve
a
d
j
us
tme
n
t.
27. The Federal Reserve banks play a role in formulating monetary policy by each of the
following, except:
a. conducting open market operations from their banks.
b. participating in FOMC meetings.
c. participation in setting the discount rate.
d. making discount loans.
28. How many members are on the Board of Governors of the Federal Reserve System?
a. Twelve, one for each district
b. Seven
c. Nine
d. F
ourtee
n
29. Current law regarding the Fed’s Board of Governors stipulates that:
a. no more than three governors can come from the same district.
b. no more than two governors can come from the same
di
s
trict.
c
. every district must have at least one governor on the board.
d. no more than one governor can come from the same district.
30. The Governors of the Federal Reserve System are appointed by the:
a. member banks from their home district.
b. Board of Directors of the Reserve Bank from their home district.
c. President of the United States.
d. Chairman of the Federal Reserve System.
31. The Governors of the Federal Reserve System serve terms of:
a. four years that can be renewed.
b. fourteen years.
c. four years, the same as the U.S. President, and the terms are not renewable.
d. seven years.
32. To make sure the U.S. President cannot unduly influence the Board of Governors:
a. the terms of the governors are staggered.
b. the law prevents a resident from appointing more than one governor. c.
the terms of the governors are ten years long.
d. only three governors can be replaced in any one year.
33. The Chairman of the Board of Governors:
a. serves a four-year term that cannot be renewed.
b. is selected from the Board of Governors, appointed by the U.S. President.
c. serves the same four-year term as the U.S. President.
d. serves an eight-year term.
34. The members of the Board of Governors in recent years have been all of the following,
except:
a. former academic economists.
b. former economic forecasters.
c. a current Secretary of the Treasury.
d. former bankers.
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35. The Board of Governors of the Fed performs each of the following functions, except:
a. analyzing financial and economic conditions.
b. setting the reserve requirement.
c. approving bank merger applications.
d. making discount loans.
36. The Federal Reserve Act explicitly requires that the Board of Governors represents each of
the following, except:
a. commercial interests.
b. foreign interests.
c. financial interests.
d. agricultural interests.
37. Members of the Board of Governors of the Fed:
a. can be reappointed after their term expires.
b. must leave office when there is a new administration elected.
c. serve one non-renewable fourteen-year term.
d. are appointed for life, though they can resign at any time.
38. The Federal Reserve’s Open Market Committee currently meets:
a. monthly.
b. bi-weekly.
c. eight times a year.
d. once every quarter, unless a crisis warrants more frequent meetings.
39. The Federal Open Market Committee began operating in:
a. 1913.
b. 1929.
c. 1914.
d. 1936.
40. The number of voting members on the Federal Open Market Committee is:
a. 7.
b. 12.
c. 19.
d. 8.
41. Which of the following is (are) not a permanent voting member(s) on the FOMC?
a. The seven Governors of the Fed
b. The Secretary of the Treasury
c. The President of the Federal Reserve Bank of New York
d. The chair of the Board of Governors
42. The Chairman of the FOMC is:
a. the Secretary of the Treasury.
b. the Vice–Chairman of the Board of Governors.
c. the Chairman of the Board of Governors.
d. the President of the New York Fed.
43. The interest rate that the FOMC currently chooses to control is:
a. the federal funds rate.
b. the 30-year Treasury bond rate.
c. the discount rate.
d. the prime rate.
44. The federal funds rate is the interest rate:
a. the Fed charges banks who borrow from it.
b. banks charge each other for overnight loans on excess reserves held at the Fed.
c. the U.S. Treasury charges banks that need emergency funds.
d. the FDIC charges banks that need to borrow from it to meet depositor demands.
45. The federal funds rate is stated as:
a. a real interest rate.
b. a nominal interest rate.
c. a rate that is automatically indexed to inflation.
d. the current rate less the expected rate of inflation.
46. The FOMC controls the real interest rate:
a. if inflation changes quickly.
b. if inflation doesn’t change quickly.
c. only if it adjusts the federal funds rate to match the changes in the rate of inflation.
d. only on an annual basis.
47. Changes in the federal funds rate influence the economy’s growth rate through all of the
following except by:
a. making it more or less attractive to people save.
b. making it more or less expensive to borrow.
c. making investment spending more or less attractive.
d. altering the real interest rate when inflation is changing quickly.
48. The primary purpose of meetings of the FOMC is to:
a. set the required reserve rate.
b. set the discount rate.
c. decide on how to influence financial conditions.
d. set the prime rate.
49. The policy directive that is produced from the FOMC meeting:
a. details the exact amount of U.S. Treasury securities the System Open Market Account
Manager is to purchase or sell.
b. sets the specific discount rate for the next eight weeks.
c. sets the specific range that the target interest rate can fall within.
d. instructs the staff of the New York Fed on how to manage the Fed’s balance sheet.
50. The attendees at the FOMC meetings receive information prior to the meetings that is
contained in books with colorful names. The information that is released to the public prior to the
meetings is from the:
a. Bluebook only.
b. Beigebook only.
c. Bluebook and Greenbook, but not the Tealbook.
d. Beigebook and Bluebook but not the Greenbook.
51. Which of the following is responsible for invoking the Fed’s emergency powers?
a. FOMC
b. Board of Governors
c. Fed Chairman
d. a majority of the Federal Reserve Bank presidents
52. Which of the books used at the FOMC meetings contains anecdotal information collect by
the Federal Reserve Banks?
a. The Bluebook
b. The Beigebook
c. The Tealbook
d. Both the Beigebook and Bluebook
53. Which of the books used at the FOMC meetings contain the Board staff’s economic forecast
for the next few years?
a. The Bluebook
b. The Beigebook
c. The Tealbook
d. Both the Beigebook and Bluebook
54. Which of the books used at the FOMC meetings contains a discussion of financial markets
and current policy options?
a. The Tealbook
b. The Beigebook
c. The Greenbook
d. Both the Beigebook and Greenbooks
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55. Which of the books used at the FOMC meetings is/are treated as secret documents and not
released to the public until after a number of years have passed?
a. The Bluebook and the Beigebook
b. The Beigebook and the Greenbook
c. The Tealbook
d. The Bluebook and the Greenbook
56. Which of the books used at the FOMC meetings can be characterized as less quantitative
than the other two?
a. The Tealbook
b. The Beigebook
c. The Greenbook
d. The white paper released to the press
57. The information contained in the Fed’s Tealbook is released to the public:
a. immediately after the FOMC meeting in which they are used.
b. within two weeks after the FOMC meeting in which they are used.
c. the material in the green book is never released to the public.
d. five years after the FOMC meeting in which they are used.
58. A typical FOMC meeting would best be described as:
a. an informal meeting with significant give and take among participants.
b. an informal meeting with the Chairman as a passive observer.
c. a fairly formal session with not much give and take.
d. a press conference, where the financial press can ask questions regarding the Fed’s view of the
economy.
59. The real power in the FOMC lies w
ith:
a
. the President of the New York Fed Bank.
b. the System Open Market Manager.
c. the Chairman of the Board of Governors.
d. no single individual; all participants have an equal share of the power.
60. Once the FOMC meetings adjourn, the public is made aware of the FOMC’s decision:
a. immediately after the meeting.
b. forty–eight hours after the meeting adjourns.
c. within five business days.
d. twenty–four hours after the meeting adjourns.
61. Once the FOMC announces the result of its meeting the attendees:
a. it must brief the financial news immediately after and answer questions posed to them.
b. observe a twenty–four hour blackout period following the meeting during which they do not
speak publicly about the economic outlook or current monetary policy.
c. observe a blackout period that lasts for a week following the meeting during which they do
not speak publicly about the economic outlook or current monetary policy.
d. never discuss the policy issues addressed in the meetings.