Chapter 4
{ } has become the most important and effective means of monetary and credit control
Open mkt operations
Total deposits can be contracted by holding the amount of reserves constant but raising the reserve requirement
True
Under the fed reserve act of 1913 state chartered banks were permitted to join the system if they could show evidence of a satisfactory financial condition
True
When reserves are added to the banking system, depository institutions may expand their lending but are not forces to do so
True
The nation banking acts of 1863 and 1864 were
modified to permit great flexibility of operations under the fed reserve act of 1913
The fed reserve system consists of all the following components except:
monetary policy committee
The fed open mkt committee:
none of the above (best and administers protective consumer finance regulations; furnishes currencies; handles US govt debt and cash balances)
the chairman of the fed reserve system:
none of the above (is appointed by the secretary of the treasury; serves life term; is the press of the NY fed reserve bank)
the most used monetary policy instrument used by the fed is
open mkt operations
1. Under the authority of the fed reserve act of 1913:
state-chartered banks were permitted to withdraw from membership of the fed
The dynamic actions of the fed reserve system:
stimulate or repress the level of prices or economic activity
One of the major weaknesses of the banking system before the fed reserve system was set up was:
the arrangement for holding reserves
The interest rate that a bank must pay to borrow from its regional fed reserve bank is called
the discount rate
During the time period 1980-2012
the discount rate was lower than the prime rate
Each member of the fed board of governors is appointed for:
14 years
The { }, passed in 1968, requires the clear explanation of consumer credit costs and garnishment procedures and prohibits overly priced credit transactions
Consumer Credit Protection Act
All commercial banks are members of the fed
False
Currently, the chairman of the fed reserve is
Janet Yellen
Which of the following statements is correct?
Open mkt operations don't always lead to an immediate change in the volume of deposits; this is especially true when bonds are sold to restrict deposit growth
The Federal Reserve System (Fed), the central bank of the United States, is responsible for setting monetary policy and regulating the banking system.
True
The US was one of the last major industrial nations to adopt a permanent system of central banking
True
The closer to the required minimum the banking system maintains its reserves, the tighter the control the fed has over the money creation process through it's other instruments
True
Which of the following is a method by which the fed reserve best monetary policy
all of the above (see text)
Although it enjoys substantial independence in its operations, the appointive power of the president and the ability of congress to alter its structure make the { } a dependent political structure while being one of the most powerful monetary organizations in the world
board of gov (bog)
An { } is necessary for the monetary system to carry out the financial function of transferring money, which in turn is a requirement for an effective financial system
efficient payments mechanism
The banking system of the US is a { } reserve system bc banks are required by the feedlot hold reserves equal to a specified percentage of their deposits
fractional
The fed board of governors:
has seven members appointed for 14 year terms
The two routes of check clearance include the { } settlement, in which the transaction takes place entirely within a single fed reserve district, and the { } settlement, in which there are relationships between banks of two fed reserve districts
intradistrict, interdistrict
In addition to the clearing of check through fed reserve banks, the fed accommodates check clearing through:
its branches and a group of regional check-processing centers
The US created its system of central banking
later than such banks were established in other industrial nations
The truth in lending act:
limits liability on lost or stolen credit cards
The purpose of Regulation Z is to:
make consumers aware of the costs of alternative forms of credit
State-chartered banks:
may be permitted to join the fed reserve system given a satisfactory financial condition
2. Under the authority of the fed reserve act of 1913:
member banks were required to purchase capital stock in the fed reserve banks of their district
The payment mechanism of the reserve bank includes:
processing and clearing checks; issuing currency and coins; electronic forms of payment
The primary responsibility of the fed reserve system is to:
regulate the growth of the money supply
History generally supports the contention that under the guidance of Paul Volcker, a { } Fed policy brought down the double-digit inflation of the 1970s and the early 1980s and the fed open mkt committee responded to his leadership
restrictive
Which of the following is not a method by which the fed reserve best monetary policy
setting bank profitability ratios
The board of gov of the fed reserve best monetary policyby
setting reserve requirements, altering the discount rate, and through fed open mkt operatins
Today the responsibilities of the fed may be described as
those relating to monetary policy, to supervision and regulation, and to service provided for depository institutions and the gov't
Under the fed reserve act of 1913, the number of fed reserve districts best is:
12
The { } conducts monetary policy for the twelve European countries that adopted the euro as their common currency
European central bank
{ } sets up a procedure for the prompt correction of errors on a revolving charge account and prevents damage to credit ratings while a dispute is being settled
Fair Credit Billing Act
Although a central bank does not necessarily operate for profit, it generally deals directly with the public
False
Discount policy is still a major instrument of monetary policy
False
Empirical evidence shows that in countries where central banks are relatively independent from their gov't, there has been higher inflation and lower economic growth rates than in countries where central banks are closely tied to their gov't
False
Fannie Mae was created to support the financial markets by purchasing home mortgages and automobile loans from banks so that the proceeds could be lent to other borrowers.
False
Fed reserve actions that stimulate or repress the level of prices or economic activity are called defensive activities
False
If excess reserves are near zero, then a reduction of a bank's reserves will cause the system to loosen credit
False
Member banks of the fed reserve system may not borrow from the fed
False
Open mkt operations are similar to discount operations in that they increase or decrease bank reserves at the initiative of the Fed
False
The US was one of the earliest major-indutrial nations to adopt a permanent system of central banking
False
The ability to change the reserve requirement is a powerful tool the fed uses frequently
False
The accommodative actions of the fed includes buying treasury securities
False
The fed board of governors is composed of seven members who are appointed for a term of 12 years
False
The fed prefers to change reserve requirements rather than to use open mkt operations
False
The fed reserve act of 1913 provided that all national and state-chartered banks were to become members of the fed
False
The fed reserve has no power to regulate the overseas activities of member banks and bank holding companies
False
The fed would be practicing contractionary monetary policy if it caused a decrease in mkt interest rates
False
The minimum amount of total reserves that depository institutions must hold are called fractional reserves
False
The only bank asset that can be counted as reserve is deposits with the reserve banks
False
The three primary means that the fed can use to exercise monetary policy includes closed mkt operations, stabilizing reserve requirements, and freeing the fed discount rate
False
The primary responsibility of the Fed is to formulate monetary policy which involves regulating the growth of the supply of money and therefore regulating its cost and availability
True
A central bank is a Fed gov't agency that facilitates operation of the financial system and regulates growth of money supply
True
A major weakness of the banking system under the National Banking Acts was that the money supply could not be easily expanded or contracted to meet changing seasonal needs and/or changes in economic activity.
True
About one third of the nation's commercial banks are members of the fed
True
Although not provided for in the original organization of the fed, open mkt operations have become the most important and effective means of monetary control
True
Banks are required by the fed to hold reserves equal to a part of their deposits as part of the fractional reserve system of the US banking system
True
Because of the National Banking Act, the volume of national bank notes depends on the government bond market rather than the seasonal or cyclical needs of the nation for currency.
True
By exercising its influence on the monetary system of the US, the fed performs a unique and important function: promoting economic stability
True
Fed reserve actions that meet the credit needs of individuals and institutions, clearing checks, and supporting depository institutions are called accommodative activities
True
Fed reserve actions that stimulate or repress the level of prices or economic activity are called dynamic actions
True
Open mkt operations involve the buying and selling of securities
True
The consumer credit protection act requires that lenders clearly explain consumer credit costs and prohibits high-priced credit transactions
True
The essential requirements of a well-functioning financial system include an efficient national payments system, a flexible money supple, and a lending//borrowing mechanism to help alleviate liquidity problems when they arise
True
The fed discount rate is the interest rate that a bank must pay to borrow from it's regional fed reserve bank
True
The fed lending rate to depository institutions was consistently lower than the bank prime lending rate during the 1980-2012 period
True
The fed open mkt committee directs open mkt operations by buying and selling securities where the primary instruments of exercising monetary policy
True
The fed reserve act require all that national banks were to become members of the fed
True
The fed would be practicing contractionary monetary policy if, through open mkt operations, it is a net seller of gov't securities
True
The money supply can be contracted by holding the amount of reserves constant but raising the reserve requirement
True
The seven member of the fed reserve board of governors are responsible for the establishment of monetary policy
True
Three essential needs of a well-operating financial system include all of the following except:
a bank insurance system
The effect of an increase of required reserves by the fed is:
a decrease in loanable funds of depository institutions
The basic policy instruments that the fed uses to execute monetary policy include all of the following except
all are monetary policy instruments (see text)
The fed reserve system consists of all of the following components except
all of the above (see text)
The members of the fed board of governors are:
appointed by the president with the advice and consent of the senate
Member banks of the fed reserve system:
are permitted to count vault cash as part of their reserves
Open mkt operations:
are used by the fed to alter bank reserves
A centrak bank serves the nation
by regulating money supply growth
Which of the following is not a tool used by the fed to implement its monetary policy:
changing the prime rate
The least used monetary policy instrument used by the fed is
changing the reserve requirement
All fed reserve banks have:
check clearance facilities
The accommodative activities of the fed reserves system are:
clearing checks; meeting the credit needs of individuals and institutions; supporting depository institutions
Members of the fed reserve system may include
commercial banks with a national charter
The basic policy instruments that the fed uses to execute monetary policy include all of the following except
conducting closed mkt operations
The board of gov of the fed reserve system
consists of 7 appointed member; sets reserve requirements; approves discount rates as part of monetary policy
The fed open mkt committee
consists of the seven members of the board of governors of the fed, plus 5 presidents of reserve banks
Fed reserve actions that offset unexpected monetary developments and contribute to the smooth everyday functioning of the economy are called
defensive actions
One significant feature of DIDMCA was that it
expanded control over the reserve requirements of non-member banks
Which of the following statements would be false? The discount rate is:
frequently used as a tool of fiscal policy
For which of the following are member banks prohibited from borrowing at the Fed's discount window
funds to meet reserve requirements; funds to meet depositor withdrawal demands; to meet business loan demands
Before the fed reserve system was created, a large part of the reserves of commercial banks was:
held deposits with large city banks
The five components of the federal reserve system include
member banks, fed reserve district banks, board of gov, fed open mkt committee, advisory committees
Bank holding companies are supervised and examined by:
the fed reserve
the seven-member board of the federal reserve that sets monetary policy is called
the federal reserve board of gov
The fed reserve banks are owned by:
the members of the fed reserve system
The discount rate is:
the rate a bank must pay to borrow from the fed
The percentage of deposits that must be held as reserves is called
the required reserve ratio
The fed reserve system's primary method for carrying out monetary policies is:
through open mkt operations
The federal open mkt committee:
was created under a provision of the banking act of 1935
