Economics CH. 12

All Federal Reserve actions are subject to veto by the executive branch. True/False

False

Money can be created in the U.S. economy only by printing more paper money and minting more coins. True/False

False

The Federal Reserve was established by the U.S. Constitution in the late 1700s. True/False

False

A foreign entity holding cash is considered a leakage in the economy. True/False

True

The Federal Reserve determines monetary policy in the United States. True/False

True

The Federal Reserve was created by the Federal Reserve Act of 1913. True/False

True

The national objectives of the Federal Reserve include promoting economic growth, full employment, stable prices, and moderate interest rates. True/False

True

The reserve requirement is the proportion of its deposits that a bank must keep on hand and not use to create money through making loans to borrowers. True/False

True

Which of these acts did NOT further clarify, supplement, and expand the mission of the Fed as originally mandated by the Federal Reserve Act of 1913? a.) Communications Act of 1934 b.) Full Employment and Balanced Growth Act of 1978 c.) Employment Act of 1946 d.) International Banking Act of 1978

a.) Communications Act of 1934

Distributes coin and currency a.) Regional Federal Reserve District Banks b.) Board of Governors of the Federal Reserve System c.) Federal Open Market Committee

a.) Regional Federal Reserve District Banks

Provides information on regional economic conditions through the Beige Book report a.) Regional Federal Reserve District Banks b.) Board of Governors of the Federal Reserve System c.) Federal Open Market Committee

a.) Regional Federal Reserve District Banks

Supervises and regulates member banks a.) Regional Federal Reserve District Banks b.) Board of Governors of the Federal Reserve System c.) Federal Open Market Committee

a.) Regional Federal Reserve District Banks

_____ is the ratio of funds that commercial banks and other depository institutions must hold in reserve against deposits. a.) Reserve requirement b.) Open market operations c.) The discount rate d.) The federal funds rate

a.) Reserve requirement

If the reserve requirement is less than the reserve ratio, excess reserves a.) are greater than zero. b.) equal zero. c.) are equal to total reserves. d.) are greater than total reserves.

a.) are greater than zero.

Which of these is NOT a tool used by the Federal Reserve? a.) asking people for advice on Twitter b.) changing the discount rate c.) using open market operations d.) changing the reserve requirement

a.) asking people for advice on Twitter

The _____ rate is roughly 0.5 percentage point higher than the Federal Open Market Committee's target federal funds rate. a.) discount b.) federal funds c.) coupon d.) prime ate

a.) discount

The interest rate that the Federal Reserve Bank (the Fed) charges member banks for loans is known as the a.) discount rate b.) required reserve ratio

a.) discount rate

The interest rate the Federal Reserve charges commercial banks for loans is the _________. a.) discount rate b.) open market operation c.) federal funds rate d.) reserve requirement

a.) discount rate

Which of these involves setting the interest rate the Federal Reserve charges commercial banks and other depository institutions to borrow reserves from a regional Federal Reserve Bank? a.) discount rate b.) open market operations c.) infrastructure spending d.) reserve requirements

a.) discount rate

The interest rate banks charge each other for very short-term loans is the __________. a.) federal funds rate b.) reserve requirement c.) discount rate d.) open market operation

a.) federal funds rate

It is important for a central bank to remain independent for it to a.) fight inflation. b.). act as a lender of last resort. c.) serve as the banker for the U.S. Treasury. d.) distribute coins and currency to commercial banks.

a.) fight inflation.

The _____ enables calculation of the maximum amount of money that can be created from a dollar deposited into the banking system. a.) money multiplier b.) monetary creator c.) banking divisor d.) Fed calculator

a.) money multiplier

Which function do the Federal Reserve regional banks NOT perform? a.) oversee open market operations b.) provide a nationwide payments system c.) distribute coins and currency d.) regulate and supervise member banks

a.) oversee open market operations

Who decides U.S. monetary policy? a.) the Federal Reserve b.) the Internal Revenue Service c.) the president d.) Congress

a.) the Federal Reserve

The Federal Reserve Act of 1913 tasked the central bank with all of these purposes EXCEPT a.) to keep unemployment low. b.) to afford means of rediscounting commercial paper. c.) to furnish an elastic currency. d.) to provide for the establishment of Federal Reserve Banks.

a.) to keep unemployment low.

In February, the Federal Reserve determined that the data showed the economy was heading toward a recession. At the March and April meetings, it debated what should be done, and at the May meeting, it finally agreed on what to do. This is an example of _____ lag. a.) decision b.) information c.) implementation d.) recognition

a.)decision

How many regional Federal Reserve Banks are there in the United States? a.) 8 b.) 12 c.) 16 d.) 30

b.) 12

Appointed by the president to serve 14 year terms a.) Regional Federal Reserve District Banks b.) Board of Governors of the Federal Reserve System c.) Federal Open Market Committee

b.) Board of Governors of the Federal Reserve System

Oversees national banking and consumer credit regulation a.) Regional Federal Reserve District Banks b.) Board of Governors of the Federal Reserve System c.) Federal Open Market Committee

b.) Board of Governors of the Federal Reserve System

Select the statement that best defines required reserves. a.) The amount of reserves banks have on hand to satisfy the demands of their customers. b.) The amount banks are required by law to hold on each deposit. c.) The amount of reserves a bank must loan out for a given deposit. d.) The amount banks are required by law to hold on each mortgage.

b.) The amount banks are required by law to hold on each deposit.

Commercial banks typically do not have sufficient reserves to a.) carry out monetary policy. b.) act as a lender of last resort. c.) serve as the banker for the U.S. Treasury. d.) distribute coins and currency to commercial banks.

b.) act as a lender of last resort.

Banks are able to create money a.) with a printing press. b.) by issuing loans. c.) by selling bonds. d.) by charging interest.

b.) by issuing loans.

The Fed can _____ the money supply by lowering this rate. a.) decrease b.) increase

b.) increase

The main function of a central bank is to: a.) assist banks in finding customers. b.) influence monetary policy. c.) print cash. d.) determine which banks are solvent.

b.) influence monetary policy.

If the reserve requirement is greater than the reserve ratio, excess reserves are a.) equal to total reserves. b.) negative. c.) greater than total reserves. d.) greater than zero.

b.) negative.

Much of the money creation in the U.S. economy is done through actions of _____ and _____. a.) savings banks; credit unions b.) the Federal Reserve; commercial banks c.) the U.S. Mint; the Bureau of Printing and Engraving d.) the stock market; the purchasers of bonds

b.) the Federal Reserve; commercial banks

What is the decision lag? a.) the lag associated with the response of banks and financial markets b.) the time it takes the Federal Reserve Board to decide on a policy once a problem is recognized c.) the time it takes for the Fed to confirm that the economy is trending in or out of a recession d.) the time the Fed must wait for economic data to be collected, processed, and reported

b.) the time it takes the Federal Reserve Board to decide on a policy once a problem is recognized

When the economy is _____, money leakage tends to rise; this tends to slow the money creation process. a.) strong b.) weak c.) transparent d.) accelerating

b.) weak

Comprises the Board of Governors and five regional bank presidents a.) Regional Federal Reserve District Banks b.) Board of Governors of the Federal Reserve System c.) Federal Open Market Committee

c.) Federal Open Market Committee

Oversees the buying and selling of government securities as a form of monetary policy a.) Regional Federal Reserve District Banks b.) Board of Governors of the Federal Reserve System c.) Federal Open Market Committee

c.) Federal Open Market Committee

_____ is/are what financial institutions charge each other for overnight loans used as reserves. a.) The prime rate b.) Reserve requirements c.) The federal funds rate d.) The discount rate

c.) The federal funds rate

If a customer deposits $500 cash in a checking account, the bank's a.) liabilities decrease by $500. b.) assets decrease by $500. c.) assets increase by $500. d.) liabilities stay the same.

c.) assets increase by $500.

The _____ rate is what financial institutions charge each other for overnight loans used as reserves. a.) prime b.) discount c.) federal funds d.) coupon

c.) federal funds

The actual money multiplier is lower than the theoretical maximum because of _____ in the economy. a.) deficits b.) inflation c.) leakages d.) growth

c.) leakages

The share of deposits that banks must have in reserves is the ____________. a.) open market operation b.) discount rate c.) reserve requirement d.) federal funds rate

c.) reserve requirement

The portion of deposits that banks must keep on hand for day-to-day operations and other purposes is called the: a.) loan-to-assets ratio. b.) inflation protection. c.) reserve requirement. d.) banks' profit margins.

c.) reserve requirement.

One of the Federal Reserve's main monetary policy tools is: a.) the chairman/woman testifying before Congress about the state of the economy. b.) holding conferences with business leaders to discuss business investments. c.) setting the discount rate which establishes the cost to banks of borrowing from the Fed. d.) regulating banks to increase consumer confidence in the financial system.

c.) setting the discount rate which establishes the cost to banks of borrowing from the Fed.

Who appoints members to sit on the Fed's Board of Governors? a.) member bank presidents b.) Congress c.) the president of the United States d.) regional bank presidents

c.) the president of the United States

The Federal Reserve Act of 1913 tasked the central bank with which of these purposes? a.) to keep inflation low b.) to keep unemployment low c.) to furnish an elastic currency d.) to provide employment in the federal government

c.) to furnish an elastic currency

If the reserve requirement is 25%, how much can a bank lend from an initial $1,000 deposit of cash? a.) $800 b.) $2,500 c.) $250 d.) $750

d.) $750

The _____ is the central bank of the United States. a.) Bank of America b.) U.S. Department of the Treasury c.) U.S. Bank d.) Federal Reserve

d.) Federal Reserve

Which of these cities has a regional Federal Reserve Bank? a.) Honolulu b.) Miami c.) Seattle d.) Kansas City

d.) Kansas City

What happens when the Federal Reserve buys a $10,000 bond? a.) The national debt decreases by $10,000. b.) The national debt increases by $10,000. c.) Reserves of $10,000 are taken out of the banking system. d.) New reserves of $10,000 are put into the banking system.

d.) New reserves of $10,000 are put into the banking system.

If the reserve ratio is less than the reserve requirement, excess reserves a.) are greater than total reserves. b.) are greater than zero. c.) are equal to total reserves. d.) are negative.

d.) are negative.

If a customer deposits $100 cash in a checking account, the bank's a.) liabilities decrease by $100. b.) assets decrease by $100. c.) liabilities stay the same. d.) assets increase by $100.

d.) assets increase by $100.

On average, how long do monetary policy lags last? a.) between one year and two years b.) between a quarter and a year c.) between two and five years d.) between a year and a year and a half

d.) between a year and a year and a half

Which of these is a liability for a bank? a.) a loan to a firm b.) required reserves c.) excess reserves d.) deposits made by a firm

d.) deposits made by a firm

The _____ rate influences nearly all other interest rates in the economy. a.) recovery b.) home loan c.) borrowing d.) federal funds

d.) federal funds

The Fed determines a course of action to address the frozen credit markets. It takes nearly a year for banks to respond. This is an example of the _____ lag. a.) information b.) recognition c.) decision d.) implementation

d.) implementation

The Fed determines a course of action to address the recession. It takes nearly a year for banks and financial markets to respond to this policy. This is an example of the _____ lag. a.)information b.)recognition c.) decision d.) implementation

d.) implementation

The federal funds rate target in 2010 was a.) about 4%. b.) over 8%. c.) over 12%. d.) just over zero.

d.) just over zero.

What are the Federal Reserve's two main goals? a.) price stability and a strong dollar b.) price stability and balanced federal budgets c.) sustainable job growth and balanced budgets d.) price stability and sustainable job growth

d.) price stability and sustainable job growth

What is the information lag? a.) the lag associated with the response of banks and financial markets b.) the time it takes the Federal Reserve Board to decide on a policy once a problem is recognized c.) the time it takes for the Fed to confirm that the economy is trending in or out of a recession d.) the time the Fed must wait for economic data to be collected, processed, and reported

d.) the time the Fed must wait for economic data to be collected, processed, and reported