Chapter 13 Test Bank Economics
144. In the United States, paper currency is printed at the a. Bureau of Engraving and Printing. b. Federal Reserve District banks. c. U.S. Mint. d. U.S. Treasury.
a
101. In controlling the nation's money supply, the Fed is obligated to seek the advice of a. the Congress. b. the President of the United States. c. the Treasury. d. a and b e. none of the above
e
103. Assuming no cash leakages and no excess reserves held by banks, a required reserve ratio of 0 percent would mean that the simple deposit multiplier is a. 0. b. 1. c. 10. d. 100. e. infinity.
e
110. If reserves increase by $5 million, what is the difference in the resulting change in checkable deposits when the required reserve ratio is 12.5 percent compared to when it is 10 percent? a. $12.5 million b. $10 million c. $2.5 million d. $100 million
b
. The Board of Governors of the Federal Reserve serves on a larger policy-making group called the House Banking Committee. a. True b. False
False
. The Fed is one of the largest departments within the U.S. Treasury. a. True b. False
False
Although the Fed can destroy money, it is impossible for the Fed to create money out of thin air. a. True b. False
False
The Fed can change the federal funds rate by issuing an order, but it cannot change the discount rate this way. a. True b. False
False
. In 2007, the Fed began using an additional monetary policy tool called the term auction facility program. a. True b. False
True
The three members of the commission that originally drew up the boundaries of the Federal Reserve Districts and the locations of the district banks were the a. Comptroller of the Currency, the Secretary of the Treasury, and the Secretary of Agriculture. b. Secretary of State, the Secretary of the Treasury, and the Speaker of the House of Representatives. c. Secretary of State, the Secretary of Commerce, and the Vice President. d. Secretary of the Treasury, the Secretary of Commerce, and the Vice President.
a
Suppose the Fed forecasts a reduction in cash leakages. It might offset the effect of this on the money supply by a. buying government securities. b. selling government securities. c. lowering the required reserve ratio. d. lowering the discount rate.
b
The Board of Governors of the Federal Reserve is comprised of a. seven persons, each appointed to a seven-year term. b. seven persons, each appointed to a fourteen-year term. c. fourteen persons, each appointed to a seven-year term. d. twelve persons, each appointed to a seven-year term. e. twelve persons, each appointed to a fourteen-year term.
b
105. There are __________ Federal Reserve Districts. a. seven b. eleven c. twelve d. fourteen
c
177. The corridor is the ________________ section of the ______________________ curve of reserves in the federal funds market. a. vertical; demand b. horizontal; demand c. vertical; supply d. horizontal; supply
c
102. Federal Reserve Notes held by the Fed are considered part of the a. money supply. b. bank reserves. c. both of the above d. none of the above
d
173. If the Fed _____________________, the money supply will ultimately __________. a. raises the discount rate relative to the federal funds rate; decrease b. lowers the discount rate relative to the federal funds rate; increase c. lowers the discount rate relative to the federal funds rate; decrease d. raises the discount rate relative to the federal funds rate; increase e. a and b
e
The Federal Open Market Committee (FOMC) meets on the first Tuesday of each month. a. True b. False
False
132. If the Fed raises the discount rate at the same time it conducts an open market sale, it follows that the money supply will a. fall. b. rise. c. remain unchanged. d. There is not enough information to answer the question.
a
174. With quantitative easing, the Fed purchases _____________________. With open market operations, the Fed purchases ______________________________. a. short-term and long-term government securities, as well as private sector bonds and securities; short-term government securities b. short-term government securities, only; long-term government securities, only c. long-term government securities, only; short-term government securities, only d. government securities, only; private sector bonds and securities
a
176. The supply curve of reserves has two kinks in it: one at the _________________ and the other at the ____________________ rate. a. interest rate that the Fed pays on reserves; discount b. federal funds rate; discount c. prime rate; discount d. discount rate; federal funds rate
a
120. Here is how an open market purchase works: The Fed __________ government securities to (from) a commercial bank, which raises the bank's deposits at the __________ and increases the bank's __________. a. sells; Fed; reserves b. buys; Fed; reserves c. buys; Treasury; discount loans d. sells; Treasury; required reserve ratio e. buys; Fed; liabilities
b
127. If the Fed lowers the discount rate (relative to the federal funds rate), banks will (likely) borrow __________ from the Fed, which will __________ reserves in the banking system, and eventually __________ the money supply. a. less; decrease; lower b. more; increase; raise c. the same amount; not change; lower d. more; decrease; raise e. none of the above
b
137. Which of the following statements is false? a. The Fed has the legal authority to create money out of thin air. b. There is a direct relationship between the money supply and the required reserve ratio. c. The Fed can cause money to disappear into thin air. d. The federal funds market is a market in which banks can borrow money from other banks.
b
139. The members of the Board of Governors of the Federal Reserve are a. elected by a vote of the Federal Reserve District Bank presidents. b. appointed by the President of the United States with approval by the Senate. c. appointed by the Congress with approval by the President of the United States. d. elected by a general election of the citizens of the United States.
b
162. Suppose that the current federal funds rate is above the federal funds target rate. In order to lower the federal funds rate the Fed will ________________ securities on the open market which will ________________ the supply of reserves in the market for reserves, pushing the rate closer to the target rate. a. sell; increase b. purchase; increase c. purchase; decrease d. sell; decrease
b
175. When the Fed engages in quantitative easing, it alters ______________________ and when the Fed makes open market purchases it alters _______________________. a. short-term interest rates; long-term interest rates b. long-term interest rates; short-term interest rates c. the required reserve ratio; income tax rates d. income tax rates; the required reserve ratio
b
106. A Federal Reserve Bank is located in which of the following cities? a. Detroit b. Baltimore c. Minneapolis d. Seattle e. Cincinnati
c
130. If the Fed wants to increase the money supply, it can __________ the required reserve ratio, conduct an open market __________, or __________the discount rate. a. lower; sale; raise b. lower; purchase; raise c. lower; purchase; lower d. raise; sale; lower e. raise; purchase; raise
c
131. If the Fed wants to decrease the money supply, it can __________ the required reserve ratio, conduct an open market __________, or __________ the discount rate. a. raise; purchase; lower b. lower; purchase; lower c. raise; sale; raise d. lower; sale; lower e. none of the above
c
133. If the Fed purchases government securities from Bank A, __________ in the banking system __________ and the money supply __________. a. reserves; fall; falls b. reserves; rise; falls c. reserves; rise; rises d. excess reserves; fall; rises e. excess reserves; rise; falls
c
167. Suppose that the Fed undertakes an open market sale, selling $1 million worth of securities to a bank. If the required reserve ratio is 8%, checkable deposits (or the money supply), would _______________ by ________________ million, assuming that there are no cash leakages and that banks hold zero excess reserves. a. rise; $12.5 b. decline; $8 c. decline; $12.5 d. rise; $8
c
168. Suppose that the Fed undertakes an open market sale, selling $3 million worth of securities to a bank. If the required reserve ratio is 11%, checkable deposits (or the money supply), would _______________ by ________________ million, assuming that there are no cash leakages and that banks hold zero excess reserves. a. rise; $27 b. decline; $33 c. decline; $27 d. rise; $33
c
170. The federal funds rate and the quantity demanded of reserves have a(n) ____________ relationship. This is because as the federal funds rate moves down, it becomes _______________ for banks to hold reserves, encouraging banks to hold ____________ in reserves to guard against checkable deposit withdrawals. a. inverse; more expensive; more b. direct; more expensive; less c. inverse; cheaper; more d. direct; cheaper; more
c
171. Which of the following is false? a. Under free banking, banks would not be subject to any special regulations beyond those which are required of other businesses. b. Under free banking, banks would be allowed to issue their own currency. c. The government would largely control the actions of banks under free banking. d. The market forces would raise or lower the money supply under free banking.
c
107. The Federal Reserve System came into existence with the Federal Reserve Act of a. 1877. b. 1933. c. 1965. d. 1913. e. 1922.
d
112. The __________ rate is the interest rate one bank pays another bank for a loan. a. discount b. mortgage c. reserve requirement d. federal funds e. bank-borrowing
d
113. An open market __________ by the Fed increases the money supply; a(n) __________ in the required reserve ratio increases the money supply. a. sale; decrease b. purchase; increase c. sale; increase d. purchase; decrease
d
115. Each of the governors of the Federal Reserve System is appointed for a term of __________ years. The Board of Governors is comprised of _____________ members and the FOMC is comprised of __________ members. a. 12; 7; 19 b. 14; 6; 22 c. 6; 5; 14 d. 14; 7; 12 e. 12; 6; 12
d
116. Which of the following is not a function of the Fed? a. to provide check-clearing services b. to hold depository institutions' reserves c. to serve as the government's banker d. to serve as the borrower of last resort e. none of the above
d
164. Suppose that the current federal funds rate is below the federal funds target rate. In order to raise the federal funds rate the Fed will ________________ securities on the open market which will ________________ the supply of reserves in the market for reserves, pushing the rate closer to the target rate. a. sell; increase b. purchase; increase c. purchase; decrease d. sell; decrease
d
165. Suppose that the Fed undertakes an open market purchase of $5 million worth of securities from a bank. If the required reserve ratio is 12%, what is the resulting change in checkable deposits (or the money supply), assuming that there are no cash leakages and that banks hold zero excess reserves? a. $4.17 million b. $7.95 million c. $5.68 million d. $41.67 million
d
172. Under a free banking arrangement, when people increase the demand for money a process would begin which would end with a(n) _________________ in the supply of money, ______________ government intervention. a. increase; with some b. decrease; with some c. decrease; without the need for d. increase; without the need for
d
178. The demand for reserves curve in the federal funds market is a. horizontal. b. vertical. c. upward sloping. d. downward sloping.
d
109. Which of the following is not a function of the Federal Reserve System? a. to clear checks b. to supervise member banks c. to serve as the lender of last resort d. to handle the sale of U.S. Treasury securities e. to serve as the government's tax collector
e
111. Which of the following will cause the money supply to decline? a. lowering the discount rate b. raising the required reserve ratio c. an open market purchase d. an open market sale e. b and d
e
124. If the Fed lowers the discount rate at the same time it conducts an open market sale, it follows that a. the money supply will fall. b. the money supply will rise. c. the money supply will remain unchanged. d. cash leakages will rise. e. There is not enough information to answer this question.
e
134. A Federal Reserve Bank is located in which of the following cities? a. St. Louis, Missouri b. Richmond, Virginia c. Atlanta, Georgia d. San Francisco, California e. all of the above
e
136. Why does the president of the Federal Reserve Bank of New York hold a permanent seat on the FOMC? a. The New York Fed is responsible for executing open market operations. b. A substantial amount of financial activity takes place in New York City. c. The Fed Board of Governors holds its regularly scheduled meetings in New York City. d. The Federal Reserve Bank of New York is the original Fed district; the other eleven districts were formed later by the Banking Act of 1935 e. a and b
e
145. Which of the following has never been a monetary policy tool of the Fed? a. open market operations b. the required reserve ratio c. the discount rate d. the term auction facility (TAF) program e. income tax rates
e
118. The president of the ________________________ holds a permanent seat on the FOMC. a. United States b. Federal Reserve District Bank of New York c. Federal Reserve District Bank of San Francisco d. U.S. Senate banking committee e. none of the above
b
67. Which of the following will increase the money supply? a. an increase in the discount rate (relative to the federal funds rate) b. a decrease in the required reserve ratio c. an open market sale by the Fed d. a and c e. b and c
b
104. One of the Fed's functions is to be the government's banker. This function means that the a. Fed holds bank reserves b. Fed extends loans to the government whenever it spends more than it collects in tax revenues. c. government's checking account is at the Fed. d. all of the above
c
108. The major policy-making group within the Fed is the __________ Committee. a. Federal Reserve Tax b. Federal Reserve Banking c. Federal Open Market d. Federal Reserve Decision-Making e. Regional Bank
c
114. A decrease in the required reserve ratio __________ the money supply; an open market purchase __________ the money supply. a. decreases; decreases b. decreases; increases c. increases; increases d. increases; decreases
c
123. Every time the Fed buys or sells on the open market, the __________ changes. a. budget deficit b. income tax rate c. money supply d. a and b e. a, b, and c
c
99. The banking system currently holds $20 billion in required reserves and zero excess reserves. The Fed lowers the required reserve ratio from 15 percent to 12.5 percent. Assuming that there are no cash leakages, the resulting change in checkable deposits (or the money supply) is approximately a. $2.7 billion. b. $1.5 billion. c. $2.0 billion. d. $12.5 billion. e. $26.6 billion.
e
If the Fed purchases government securities from a commercial bank, which of the following will happen? a. The Fed will increase the bank's reserves on deposit at the Fed. b. The Fed will decrease the bank's reserves on deposit at the Fed. c. The assets (government securities) of the Fed will decrease. d. The assets (government securities) of the Fed will increase. e. a and d
e
The Fed can change the money supply by changing a. the required reserve ratio. b. marginal income tax rates. c. federal excise taxes. d. unemployment benefits.
a
The interest rate that a commercial bank pays when it borrows from the Fed is the __________ rate. a. discount b. exchange c. federal d. bank
a
The sale of government securities by the Fed a. decreases the supply of money. b. increases the supply of money. c. decreases the demand for money. d. increases the demand for money.
a
84. Which of the following is not a monetary policy tool of the Fed? a. changing the required reserve ratio b. changing the discount rate c. setting the price level and the market rate of interest d. conducting open market operations
c
89. The discount rate is the interest rate a. banks pay on certificates of deposit. b. the Fed pays on reserves held by banks. c. the Fed charges when it lends reserves to banks. d. banks charge their loan customers. e. on short-term Treasury securities.
c
Open Market Operations are conducted by a. the main Fed office in Washington, D.C. b. the U.S. Treasury on behalf of the Fed. c. the Federal Reserve Bank of New York. d. a consortium of private banks contracted by the Fed.
c
The United States is divided into __________ Federal Reserve districts, each with a district bank. a. three b. eight c. twelve d. twenty e. fifty
c
The larger the simple deposit multiplier, a. the higher the required reserve ratio. b. the higher the discount rate. c. the larger the change in the money supply for a given change in deposits. d. the less likely the Fed will be to use its monetary policy tools.
c
The word that best describes the relationship between the required reserve ratio and the money supply is a. direct. b. constant. c. inverse. d. roundabout.
c
Which of the following is not a major responsibility of the Fed? a. controlling the money supply b. serving as the federal government's banker c. determining tax rates d. acting as a lender of last resort
c
. When we speak of the Fed's responsibility to supervise member banks, we are saying that the a. Fed's advisory board will help member banks manage their assets and liabilities. b. Fed's Open Market Committee will advise member banks regarding the purchase and sale of government securities. c. Fed's Board of Governors will advise member banks regarding the appropriate interest rates to be charged on various loans. d. Fed will advise member banks regarding the nature of loans and compliance with regulations. e. Fed will advise member banks about the proper control of each individual bank's money supply.
d
92. A bank is less likely to borrow from the Fed when the __________ falls relative to the __________. a. discount rate; required reserve ratio b. excess reserve; required reserves c. discount rate; federal funds rate d. federal funds rate; discount rate
d
The Board of Governors of the Federal Reserve is part of a larger policy-making group called the a. Senate Banking Committee. b. Federal Deposit Insurance Corporation. c. American Banking Association. d. Federal Open Market Committee.
d
Which of the following statements is false? a. The Fed serves as the lender of last resort for banks. b. The Fed serves as a fiscal agent for the U.S. Treasury. c. A major responsibility of the Fed is to control the nation's money supply. d. The federal government is the Fed's banker.
d
William Jennings Bryan, Secretary of State at the time of the passage of the Federal Reserve Act, argued in favor of having ______ district banks. a. six b. not less than eight nor more than twelve c. twelve d. fifty
d
The lower the discount rate relative to the federal funds rate, the more likely a commercial bank will borrow from a. another commercial bank instead of the Fed. b. the Fed instead of another commercial bank. c. the U.S. Treasury instead of either the Fed or another commercial bank. d. the public.
b
When a commercial bank borrows from the Fed, a. the reserves of the bank fall. b. the bank can make more loans. c. it must be because the bank is not meeting its reserve requirements. d. the money supply falls.
b
When the Fed is acting as fiscal agent for the Treasury, it will a. buy securities from the Treasury, thereby providing the Treasury with money to pay the government's bills. b. receive and process bids for Treasury securities in preparation for the Treasury's auction of securities. c. serve as a lender of last resort. d. supply the Treasury with paper money whenever the Treasury does not have enough funds to meet its bills. e. supervise the Treasury by examining its books.
b
A commercial bank can receive a loan from another commercial bank in the a. federal funds market. b. bank loan market. c. Fed market. d. discount market.
a
The Fed a. can examine the books of a member bank without warning. b. can examine the books of a member bank after giving advance notice. c. can examine the books of a member bank with the bank's permission. d. is never allowed to see the books of a privately owned bank.
a
78. When a bank obtains a loan from the Fed, it follows that the a. simple deposit multiplier rises. b. bank (itself) can create more loans. c. bank's reserves decrease. d. bank's reserves remain unchanged. e. none of the above
b
79. When Bank A obtains a loan from the Fed, the a. discount rate is probably higher than the federal funds rate. b. bank's reserves increase. c. simple deposit multiplier decreases. d. b and c e. none of the above
b
88. In the federal funds market, a. banks make loans to the Fed. b. banks make loans to other banks. c. the Fed makes short-term loans to banks. d. the Fed makes long-term loans to banks.
b
95. The lower the required reserve ratio, a. the less money that can be loaned at each round of the lending process. b. the larger the simple deposit multiplier. c. the smaller the simple deposit multiplier. d. the fewer excess reserves there are at each round of the simple deposit multiplier process. e. a, c, and d
b
If banks are currently holding zero excess reserves and the Fed lowers the required reserve ratio, which of the following will happen? a. Banks will have a reserve deficiency. b. Banks will have positive excess reserves. c. Banks will extend fewer loans. d. Banks will call in some of their loans to meet the reserve deficiency.
b
Suppose the Fed sells a $50,000 U.S. Treasury security to Martha, a member of the public. If Martha writes a check to the Fed in order to buy this security, the money in her checking account will be transferred to a. the Fed, and now the Fed will have $50,000 more in reserves than it had before. b. her bank, and now her bank will have $50,000 more in reserves than it had before. c. the Fed, and now it is as if the money doesn't exist. d. the Treasury, and now the Treasury will have $50,000 more in reserves than it had before.
c
The Federal Reserve System began operations in a. 1834. b. 1896. c. 1914. d. 1935.
c
The Federal Reserve System is the a. federal government agency that collects taxes and spends these receipts on tanks, bridges, government employees' salaries, etc. b. company that delivers packages to your front door. c. central bank of the United States. d. federal government agency that collects and disseminates all the economic data that economists are interested in.
c
The original boundaries for the Federal Reserve districts were determined based on a. Congressional district boundaries. b. population distributions obtained from the census. c. trade boundaries. d. state lines. e. none of the above
c
An "open market operation" is said to occur when the Fed a. arranges for the merger of two banks. b. changes the interest rate at which it lends reserves. c. transfers reserves between banks. d. buys or sells government securities.
d
86. If the Fed ______________________, the money supply will ultimately __________. a. raises the required reserve ratio from 8 percent to 10 percent; decrease b. lowers the required reserve ratio from 10 percent to 8 percent; increase c. lowers the required reserve ratio from 10 percent to 8 percent; decrease d. raises the required reserve ratio from 8 percent to 10 percent; increase e. a and b
e
When commercial banks need more Federal Reserve Notes, a. they call the Bureau of Engraving and Printing, which delivers the requested amount. b. they call the Board of Governors of the Fed, which delivers the requested amount. c. they ask their customers to exchange their Federal Reserve Notes for U.S. Treasury securities. d. they call the Treasury, which delivers the requested amount. e. they call their Federal Reserve District Bank, which delivers the requested amount.
e
When the federal government incurs a budget deficit, it will a. mint more coins and spend them. b. create money out of thin air. c. impose a special tax on all income earners. d. borrow money from the Federal Reserve System by issuing securities. e. borrow money from the public by issuing government securities.
e
Which of the following is not a major responsibility of the Fed? a. supplying the economy with paper money b. providing check-clearing services c. supervising member banks d. serving as fiscal agent for the Treasury e. All of the above are major responsibilities of the Fed.
e
When the Federal Reserve system was being created, some people thought that there should be as few district banks as possible to enhance efficiency and for ease of operation. a. True b. False
True
75. To decrease the money supply, the Fed may a. buy government securities in the open market. b. decrease the discount rate. c. increase the required reserve ratio. d. b and c e. all of the above
c
93. Which of the following will not increase the money supply in the United States? a. lowering the required reserve ratio b. Fed purchases of government securities on the open market c. lowering the discount rate relative to the federal funds rate d. Fed sales of government securities on the open market e. none of the above
d
The interest rate that the Fed charges when it lends reserves to banks is called the federal funds rate. a. True b. False
False
The interest rate that the Fed pays on reserves acts as a ceiling on the federal funds rate. a. True b. False
False
To decrease the money supply, the Fed may sell government securities or lower taxes. a. True b. False
False
To limit political influence on Fed policy, the terms of the Fed Board of Governors are staggered so that one new appointment is made every four years to coincide with the presidential elections. a. True b. False
False
. Lowering the required reserve ratio raises the simple deposit multiplier. a. True b. False
True
A discount loan is a loan the Federal Reserve makes to a commercial bank. a. True b. False
True
Both open market purchases and quantitative easing are directed at increasing reserves in the banking system and increasing the money supply. a. True b. False
True
Controlling the nation's money supply is the most important duty of the Federal Reserve. a. True b. False
True
Members of the Board of Governors of the Federal Reserve are appointed by the President and approved by the Senate to serve a 14-year term. a. True b. False
True
The Federal Reserve Bank of Minneapolis once chartered a small airplane to deliver money to a commercial bank that was experiencing a "mad run" on the bank. a. True b. False
True
72. The Board of Governors of the Federal Reserve a. is made up of seven members. b. is a group of advisers reporting to the President. c. is located in New York City. d. members are appointed to four-year terms by the President and confirmed by the Senate. e. all of the above
a
73. The Federal Open Market Committee (FOMC) is composed of the seven members of the Board of Governors, a. the president of the New York Federal Reserve District Bank, and four of the remaining 11 Federal Reserve District Bank presidents who rotate on an annual basis. b. and five state governors who rotate on an annual basis. c. four Federal Reserve District Bank presidents who rotate on an annual basis, and the head of the Senate Banking Committee. d. and the Secretary of the Treasury.
a
98. Which of the following Fed actions will decrease the money supply? a. an open market purchase of Treasury bills b. an increase in the required reserve ratio c. a decrease in the discount rate relative to the federal funds rate d. all of the above e. none of the above
b
An open market purchase by the Fed a. decreases the supply of money. b. increases the supply of money. c. decreases the demand for money. d. increases the demand for money.
b
94. The Fed has been called "the lender of last resort" because it a. is the biggest bank in the country. b. is the only lender to the federal government. c. serves as the last place to acquire loans for banks suffering cash management, or liquidity, problems. d. a and b e. all of the above
c
96. Which of the following is not a responsibility of the Fed? a. supervising member banks b. serving as the lender of last resort c. determining the level of government spending d. providing check-clearing services e. supplying the economy with Federal Reserve Notes
c
68. Which of the following will decrease the money supply? a. an increase in the discount rate (relative to the federal funds rate) b. an increase in the required reserve ratio c. an open market purchase by the Fed d. a and b e. a, b, and c
d
85. The required reserve ratio is set by the a. U.S. Congress. b. President of the United States. c. Secretary of the Treasury. d. Federal Reserve. e. Director of Monetary Affairs.
d
87. An open market sale by the Fed will a. increase bank reserves. b. increase currency held by the public or vault cash. c. increase the money supply. d. reduce the money supply.
d
Under free banking, banks are regulated by the Federal Reserve. a. True b. False
False
When the Federal Open Market Committee (FOMC) votes on policy, it does so in the following order: the chair votes first, the vice chair votes second, and the remaining FOMC members vote based on their seniority at the Fed. a. True b. False
False
The smaller the required reserve ratio, the larger the simple deposit multiplier. a. True b. False
True
There is an inverse relationship between the required reserve ratio and the money supply. a. True b. False
True
71. The Federal Open Market Committee (FOMC) a. has six members. b. conducts open market operations. c. is the policy-making body within the Treasury. d. is the governing body of the Federal Reserve System. e. a, b, and c
b
74. When the Fed purchases securities from a bank, it __________ reserves and ____________ the money supply. a. decreases; decreases b. increases; increases c. decreases; increases d. increases; decreases e. has no impact on; has no impact on
b
. When one commercial bank borrows from another commercial bank, it pays the __________ rate. a. discount b. bank interest c. federal funds d. prime e. none of the above
c
. When a check is written on an account at Bank A and deposited in Bank B, the reserve account of __________ will rise and reserves of the entire banking system will __________. a. Bank A; rise b. Bank A; remain constant c. Bank B; rise d. Bank B; remain constant
d
69. The Federal Reserve System a. is the central bank of the United States. b. controls the money supply. c. is the lender of last resort. d. handles the sale of U.S. Treasury securities. e. all of the above
e
70. The Fed a. clears checks. b. holds depository institutions' reserves. c. is the government's banker. d. supplies Federal Reserve Notes. e. all of the above
e
The boundaries of the Federal Reserve districts were determined based on trade patterns between cities. a. True b. False
True
The discount rate is sometimes also known as the primary credit rate. a. True b. False
True
The president of the Federal Reserve District Bank of New York holds a permanent seat on the Federal Open Market Committee. a. True b. False
True
To deal with the financial crisis of 2007-2009, the Fed extended its lender of last resort function to include institutions other than banks. a. True b. False
True
To expand the money supply the Fed could lower the required reserve ratio, lower the discount rate, or purchase government securities. a. True b. False
True
When the Fed was created, its governing body was called the Federal Reserve Board, but it was later officially renamed the Board of Governors of the Federal Reserve System. a. True b. False
True
The funds the Fed receives from selling government securities a. are deposited in a commercial bank. b. disappear into thin air. c. are turned over to the Office of Management and Budget in Washington, D.C. d. are deposited in the U.S. Treasury.
b
121. Here is how an open market sale works: A commercial bank __________ government securities to (from) the Fed, which lowers the bank's deposits at the __________ and __________ the bank's __________. a. buys; Fed; lowers; reserves b. sells; Treasury; raises; reserves c. sells; Fed; raises; reserves d. buys; Treasury; lowers; liabilities e. none of the above
a
122. If there are no excess reserves in the banking system and the Fed lowers the required reserve ratio, it follows that banks will now have __________, which they can use to extend loans and create new __________. a. positive excess reserves; checkable deposits b. negative excess reserves; currency c. positive excess reserves; currency d. more vault cash; checkable deposits e. none of the above
a
140. The chairman of the Board of Governors of the Fed is designated by ____________________ to serve a _______ year term as chairman. a. the President; four b. Congress; fourteen c. the President; twelve d. Congress; four
a
146. When the Federal Open Market Committee (FOMC) votes on policy, they do so a. in the following order: the chair, the vice chair, the remaining FOMC members in alphabetical order. b. in order based on seniority at the Fed. c. in the following order: the chair, the vice chair, the remaining FOMC members by seniority at the Fed. d. in alphabetical order.
a
148. A required reserve ratio of 7 percent gives rise to a simple deposit multiplier of a. 14.29. b. 83.33. c. 1.43. d. 93. e. 7.
a
149. The simple deposit multiplier is a. the reciprocal of the required reserve ratio. b. always 1. c. the same as the required reserve ratio. d. different from bank to bank even if the required reserve ratio is the same for all banks.
a
150. Lowering the required reserve ratio __________ the simple deposit multiplier which will __________ the economy's money supply. a. raises; increase b. raises; decrease c. lowers; increase d. lowers; decrease
a
152. A bank is reserve deficient when a. its reserves fall short of the level determined by the required reserve ratio. b. its excess reserves are greater than its required reserves. c. its required reserves are greater than its excess reserves. d. it purchases government securities from the Fed.
a
155. Which of the following describes a change that the Federal Reserve made in response to the financial crisis of 2007-2009? a. The Fed extended the lender of last resort function to institutions other than banks. b. The Fed narrowed the scope of its open market operations, choosing to limit it to only buying Treasury securities from banks. c. The Fed discontinued its term auction facility (TAF) program. d. all of the above
a
156. The term auction facility (TAF) program was instituted by the Federal Reserve to deal with the ________________________. This program gave banks ____________ options when it comes to borrowing from the Fed. a. financial crisis of 2007-2009; more b. Great Depression; more c. financial crisis of 2007-2009; fewer d. Great Depression; fewer
a
166. Suppose that the Fed undertakes an open market purchase of $1 million worth of securities from a bank. If the required reserve ratio is 9%, what is the resulting change in checkable deposits (or the money supply), assuming that there are no cash leakages and that banks hold zero excess reserves? a. $11.11 million b. $9 million c. $1.09 million d. $90 million
a
169. In its current execution of monetary policy, the Fed does not usually have a specific _____________ target, but rather it tries to target a specific ________________. a. money supply; federal funds rate b. federal funds rate; money supply c. money supply; discount rate d. required reserves ratio; discount rate
a
128. If the Fed lowers the required reserve ratio, __________ in the banking system will remain unchanged but __________ will rise. This will (likely) lead to an increase in new loans and checkable deposits and a(n) __________ in the money supply. a. excess reserves; vault cash; increase b. reserves; vault cash; decrease c. reserves; excess reserves; increase d. reserves; required reserves; increase e. none of the above
c
80. When the Fed increases the required reserve ratio, a bank's a. excess reserves are unaffected. b. excess reserves are increased. c. excess reserves are decreased. d. required reserves are decreased. e. b and d
c
83. When commercial banks borrow from other commercial banks, the immediate impact is that reserves in the banking system a. increase. b. decrease. c. are unaffected. d. first increase, then decrease. e. first decrease, then increase.
c
100. If a bank has zero excess reserves and one of its creditworthy customers applies for a loan, the bank may be able to grant the loan if it can a. apply some of its loan repayments to obtain the funds for the new loan. b. obtain extra funds in the federal funds market. c. obtain extra funds by borrowing from the Fed. d. any of the above e. b or c
d
117. Paper money is printed at the _______________________, but it is issued to commercial banks by the ______________________________. a. Bureau of Engraving and Printing; FOMC b. U.S. Mint; 12 Federal Reserve District Banks c. Federal Reserve building in Washington; D.C., U.S. Treasury d. Bureau of Engraving and Printing; 12 Federal Reserve District Banks e. none of the above
d
119. The most important responsibility of the Fed is to a. clear checks. b. supervise member banks. c. serve as fiscal agent for the U.S. Treasury. d. control the money supply.
d
125. Which of the following will increase the money supply? a. increasing the required reserve ratio b. an open market sale c. raising the discount rate relative to the federal funds rate d. none of the above
d
126. If Bank A borrows from Bank B, reserves in the banking system __________. If Bank A borrows from the Fed, reserves in the banking system __________. a. rise; fall b. fall; remain unchanged c. remain unchanged; remain unchanged d. remain unchanged; rise e. rise; remain unchanged
d
129. If the federal funds rate falls below the discount rate, banks will decrease their borrowings from __________ and __________ their borrowings from __________. It follows that when one bank borrows from __________, reserves in the banking system __________. a. other banks; increase; the Fed; another bank; remain unchanged b. the Fed; decrease; other banks; another bank; remain unchanged c. other banks; increase; the U.S. Treasury; the Treasury; increase d. the Fed; increase; other banks; another bank; remain unchanged e. none of the above
d
135. The president of the Federal Reserve Bank of ________________ holds a permanent seat on the _________________________. a. New York; Board of Governors of the Federal Reserve System b. Washington D.C.; FOMC c. San Francisco; FOMC d. New York; FOMC e. Washington D.C.; Board of Governors of the Federal Reserve System
d
138. The Banking Act of 1935 changed the name of the _______________ to the Board of Governors of the Federal Reserve System. a. Federal Open Market Committee b. Board of Monetary Affairs c. Central Bank Board d. Federal Reserve Board
d
147. A required reserve ratio of 12 percent gives rise to a simple deposit multiplier of a. 12. b. 83.33. c. 6.67. d. 8.33.
d
151. Raising the required reserve ratio __________ the simple deposit multiplier which will __________ the economy's money supply. a. raises; increase b. raises; decrease c. lowers; increase d. lowers; decrease
d
153. If reserves increase by $4 million and the required reserve ratio is 8%, what is the resulting change in checkable deposits (or the money supply), assuming that there are no cash leakages and that banks hold zero excess reserves? a. $3.2 million b. $3.7 million c. $5 million d. $50 million
d
154. If reserves increase by $7 million and the required reserve ratio is 12%, what is the resulting change in checkable deposits (or the money supply), assuming that there are no cash leakages and that banks hold zero excess reserves? a. $0.84 million b. $7.95 million c. $5.83 million d. $58.33 million
d
163. When a bank repays a _________________ loan, the Fed _____________________ the bank's reserve account. a. overnight; subtracts the repayment from b. overnight; adds the repayment to c. discount; adds the repayment to d. discount; subtracts the repayment from
d
90. Open market purchases of government securities a. are designed to increase trading on the stock exchange. b. generally decrease the money supply. c. always decrease the money supply. d. cause bank reserves to increase. e. all of the above
d
Suppose the Fed forecasts a reduction in excess reserve holdings by banks. It might offset the effect of this on the money supply by a. buying government securities. b. lowering the required reserve ratio. c. lowering the discount rate. d. selling government securities. e. a, b, and c
d
76. When the Fed sells government securities to a bank, the securities will be a. an asset for the bank. b. a liability for the bank. c. both an asset and a liability for the bank. d. neither an asset nor a liability for the bank.
a
82. If the Fed were to increase the discount rate so that it was much higher than the federal funds rate, eventually a. reserves would decrease and the money supply would decrease. b. reserves would increase and the money supply would increase. c. reserves would decrease and the money supply would increase. d. reserves would increase and the money supply would decrease. e. there is no impact on reserves or the money supply.
a
91. Which of the following actions is most likely to lead to an increase in the money supply? a. Fed purchases of government securities b. an increase in the required reserve ratio c. an increase in the discount rate d. none of the above
a
97. Which of the following Fed actions will increase the money supply? a. open market purchases of Treasury notes b. an increase in the required reserve ratio c. an increase in the discount rate d. all of the above e. none of the above
a
If banks are currently holding zero excess reserves and the Fed raises the required reserve ratio, which of the following will happen? a. Banks will have a reserve deficiency. b. Banks will have positive excess reserves. c. Banks will begin to extend more loans. d. Banks will begin to extend more credit. e. b and d
a
If the Fed purchases government securities from commercial banks, the reserves of the banking system will immediately a. increase by the amount of the purchase. b. increase by more than the amount of the purchase. c. remain constant. d. decrease by the amount of the purchase. e. decrease by more than the amount of the purchase.
a
If the Fed wants to increase the money supply through open market operations, it will a. purchase government securities. b. sell government securities. c. first purchase, then sell, government securities. d. lend more reserves to commercial banks.
a
Open market operations are the a. buying and selling of Federal Reserve Notes in the open market. b. means by which the Fed supplies the economy with currency. c. means by which the Fed acts as the government's banker. d. buying and selling of government securities by the Fed. e. buying and selling of government securities by the Treasury.
d
77. When the Fed sells government securities to a bank, the a. bank's reserves increase. b. bank's reserves decrease. c. bank's reserves do not change. d. securities are an asset for the bank. e. b and d
e
81. When the Fed increases the required reserve ratio, a bank's a. required reserves are unaffected. b. required reserves are increased. c. required reserves are decreased. d. excess reserves are decreased. e. b and d
e