chapter 4 T/F
The ability to change the reserve requirement is a powerful tool the Fed uses frequently.
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The accommodative actions of the Fed includes buying treasury securities.
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The minimum amount of total reserves that depository institutions must hold are called fractional reserves.
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The only bank asset that can be counted as reserve is deposits with the Reserve Banks.
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The three primary means that the Fed can use to exercise monetary policy includes closed market operations, stabilizing reserve requirements, and freeing the Federal discount rate.
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The essential requirements of a well-functioning financial system include an efficient national payments system, a flexible money supply, and a lending/borrowing mechanism to help alleviate liquidity problems when they arise.
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The money supply can be contracted by holding the amount of reserves constant but raising the reserve requirement.
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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.
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The seven members of the Federal Reserve Board of Governors are responsible for the establishment of monetary policy.
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Total deposits can be contracted by holding the amount of reserves constant but raising the reserve requirement.
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Under the Federal Reserve Act of 1913 State-chartered banks were permitted to join the system if they could show evidence of a satisfactory financial condition
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When reserves are added to the banking system, depository institutions may expand their lending but are not forced to do so.
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All commercial banks are members of the Fed.
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The Federal Reserve Act of 1913 provided that all national and state-chartered banks were to become members of the Fed.
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The Federal Reserve has no power to regulate the overseas activities of member banks and bank holding companies.
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The United States was one of the earliest major-industrial nations to adopt a permanent system of central banking.
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Although a central bank does not necessarily operate for profit, it generally deals directly with the public.
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Discount policy is still a major instrument of monetary policy.
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Empirical evidence shows that in countries where central banks are relatively independent from their governments, there has been higher inflation and lower economic growth rates than in countries where central banks are closely tied to their governments.
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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.
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Federal Reserve actions that stimulate or repress the level of prices or economic activity are called defensive activities.
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If excess reserves are near zero, then a reduction of a bank's reserves will cause the system to loosen credit.
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Member banks of the Federal Reserve System may not borrow from the Fed.
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Open market operations are similar to discount operations in that they increase or decrease bank reserves at the initiative of the Fed.
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The Fed Board of Governors is composed of seven members who are appointed for a term of 12 years.
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The Fed prefers to change reserve requirements rather than to use open market operations.
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The Fed would be practicing contractionary monetary policy if it caused a decrease in market interest rates.
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A central bank is a Federal government agency that facilitates operation of the financial system and regulates growth of the money supply.
T
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.
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About one-third of the nation's commercial banks are members of the Fed.
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Although not provided for in the original organization of the Fed, open market operations have become the most important and effective means of monetary control.
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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 U.S. banking system.
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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.
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By exercising its influence on the monetary system of the United States, the Fed performs a unique and important function: promoting economic stability.
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Federal Reserve actions that meet the credit needs of individuals and institutions, clearing checks, and supporting depository institutions are called accommodative activities.
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Federal Reserve actions that stimulate or repress the level of prices or economic activity are called dynamic actions.
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Open market operations involve the buying and selling of securities.
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The Consumer Credit Protection Act requires that lenders clearly explain consumer credit costs and prohibits overly high-priced credit transactions.
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The Fed discount rate is the interest rate that a bank must pay to borrow from its regional Federal Reserve Bank.
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The Fed lending rate to depository institutions was consistently lower than the bank prime lending rate during the 1980-2012 period.
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The Fed would be practicing contractionary monetary policy if, through open market operations, it is a net seller of government securities.
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The Federal Open Market Committee directs open market operations by buying and selling securities which are the primary instruments of exercising monetary policy.
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The Federal Reserve Act required that ALL national banks were to become members of the Fed.
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The Federal Reserve System (Fed), the central bank of the United States, is responsible for setting monetary policy and regulating the banking system.
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The United States was one of the last major industrial nations to adopt a permanent system of central banking.
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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 its other instruments.
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