CH.4 Federal Reserve System

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 Governors (BOG)

The __________________, passed in 1968, requires the clear explanation of consumer credit costs and garnishment procedures (taking wages or property by legal means) and prohibits overly high-priced credit transactions

Consumer Credit Protection Act

The ___________________ conducts monetary policy for the European countries that have adopted the euro as their common currency.

European Central Bank

The ____________________________ conducts monetary policy for the 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

Currently, the Chairman of the Federal Reserve is ________________________.

Janet Yellen

The five components of the Federal Reserve System include

Member banks, Federal Reserve District Banks, Board of Governors, Federal Open Market Committee, Advisory committees.

__________________ has become the most important and effective means of monetary and credit control.

Open market operations

Which of the following statements is correct?

Open-market 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. to the extent banks borrow from the Fed to replenish lost reserves makes the change a gradual one

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 reduces excess reserves

In addition to the clearing of checks through Federal Reserve Banks, the Fed accommodates check clearing through:

a group of regional check-processing centers

Select ALL of the following that are basic policy instruments that the Fed uses to execute monetary policy: a. changing reserve requirements b. changing the discount rate c. conducting open market operation

a, b, c

Select ALL of the following that are components of the Federal Reserve System: a. Federal Reserve District Banks b. Board of Governors c. Federal Open Market Committee d. U.S. Treasury e. Congress

a, b, c

: Select ALL of the following that are not components of the Federal Reserve System: a. Monetary Policy Committee b. Board of Governors c. Federal Open Market Committee d. Congressional Budget Office e. President of the United States

a, d, e

The accommodative activities of the Federal Reserve System are:

a. clearing checks b. meeting the credit needs of individuals and institutions c. supporting depository institutions d. all of the above

The Board of Governors of the Federal Reserve System:

a. consists of 7 appointed members b. sets reserve requirements c. approves discount rates as part of monetary policy d. all the above

The Federal Open Market committee:

a. establishes and administers protective consumer finance regulations b. furnishes currencies c. handles U.S. government debt and cash balances d. all the above e. none of the above none of the above

. The chairman of the Federal Reserve System

a. is appointed by the Secretary of the Treasury U.S. President b. serves a life term maximum 14 year term c. is the president of the New York Federal Reserve Bank d. none of the above none of the above

The payment mechanism of the Reserve Bank includes:

a. processing and clearing checks b. issuing currency and coins c. electronic forms of payment d. all the above

The members of the Fed Board of Governors are:

appointed by the President of the United States with the advice and consent of the Senate

Member banks of the Federal Reserve System:

are permitted to count vault cash as part of their reserves

The National Banking Acts of 1863 and 1864 were:

b. were modified to permit greater flexibility of operations under the Federal Reserve Act of 1913

A central bank serves the nation:

by regulating money supply growth

Select ALL of the following that are not basic policy instruments that the Fed uses to execute monetary policy: c. conducting primary market operations d. regulating and overseeing the New York Stock Exchange e. determining the national budge

c, d,e

Which of the following is not a tool used by the Fed to implement its monetary policy?

changing the prime rate this is not a monetary policy tool of the Fed, see p 61

. All Federal Reserve Banks have:

check clearance facilities

. Members of the Federal Reserve System may include

commercial banks with a national charter

The Federal Open Market Committee:

consists of the seven members of the Board of Governors of the Fed, plus five presidents of Reserve Banks

Which of the following is a method by which the Federal Reserve establishes monetary policy? a. setting reserve requirements b. altering the discount rate c. through federal open market operations d. all of the above methods are used

d. all of the above methods are used

Federal Reserve actions that offset unexpected monetary developments and contribute to the smooth everyday functioning of the economy are called

defensive actions

The Fed's service functions to depository institutions and the U.S. government include: a. the payments mechanism b. electronic funds transfers c. net settlements facilities d. safekeeping and transfer of securities e. all of the above

e. all of the above

History generally supports the contention that under the guidance of Paul Volcker, a (n) ____________ Fed policy brought down the double-digit inflation of the 1970s and the early 1980s, and the Federal Open Market Committee consistently responded to his leadership. a. loosening of b. easing of c. expansionary d. two of the above e. none of the above

e. none of the above

The Board of Governors of the Federal Reserve establishes monetary policy by: a. setting reserve requirements, altering the prime rate, and through federal open market operations. b. setting loan to value ratios, altering the discount rate, and through federal open market operations. c. setting reserve requirements, altering the discount rate, and through international currency transactions. d. setting bank profitability ratios, altering the discount rate, and through federal open market operations. e. none of the above

e. none of the above

The five components of the Federal Reserve System include a. Member banks, Federal Reserve District Banks, Board of Governors, Federal Open Market Committee, Monetary Committees. b. Nonmember banks, Federal Reserve District Banks, Board of Governors, Federal Open Market Committee, Advisory committees. c. Member banks, Federal Reserve District Banks, Board of Presidents, Federal Open Market Committee, Advisory committees. d. Member banks, Federal Reserve District Banks, Board of Governors, Federal Closed Market Committee, Advisory committees. e. none of the above

e. none of the above

Which of the following statements is correct? a. Open-market operations always lead to an immediate increase in the volume of lending; this is especially true when bonds are sold to restrict deposit growth. Selling bonds → ↓ deposit growth → reduces lending b. Open-market operations don't always lead to an immediate change in the volume of deposits; this is especially true when bonds are purchased to restrict deposit growth. buying bonds expands deposit growth c. Open-market operations always lead to an immediate change in the volume of deposits; this is especially true when bonds are sold to expand deposit growth. selling bonds restricts deposit growth d. Increasing reserve requirements always leads to an immediate increase in the volume of lending; this is especially true when bonds are sold to restrict deposit growth. ↑ reserve requirements → ↓ excess reserves → e. none of the above

e. none of the above

One significant feature of DIDMCA was that it:

expanded Fed control over the reserve requirements of non-member bank

Which of the following statements is 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 b. funds to meet depositor withdrawal demands c. to meet business loan demands d. all the above are permitted

. The Fed Board of Governors:

has seven members appointed for 14-year terms

Before the Federal Reserve System was created, a large part of the reserves of commercial banks was:

held as deposits with large city banks third weakness

The two routes of check clearance include the _____________ settlement, in which the transaction takes place entirely within a single Federal Reserve district, and the _____________ settlement, in which there are relationships between banks of two Federal Reserve districts.

intradistrict, interdistrict

The United States created its system of central banking:

later than such banks were established in other industrial nations

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 Federal Reserve system, given a satisfactory financial condition

The Federal Reserve Banks are owned by:

member banks of the Federal Reserve System

Under the authority of the Federal Reserve Act of 1913:

member banks were required to purchase capital stock in the Federal Reserve Banks of their district

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. a. Presidential Appointment Board (PAB) b. Board of Directors (BOD) c. Governing Body (GOB) d. Financial Governors (FOG) e. none of the above

none of the above

The most frequently used monetary policy instrument used by the Fed is

open market operations

History generally supports the contention that under the guidance of Paul Volcker, a (n) ____________ Fed policy brought down the double-digit inflation of the 1970s and the early 1980s, and the Federal Open Market Committee consistently responded to his leadership.

restrictive

Which of the following is not a method by which the Federal Reserve establishes monetary policy?

setting bank profitability ratios

The Board of Governors of the Federal Reserve establishes monetary policy by:

setting reserve requirements, altering the discount rate, and through federal open market operations

Under the authority of the Federal Reserve Act of 1913:

state-chartered banks were permitted to withdraw from membership with the Fed

. The dynamic actions of the Federal Reserve System:

stimulate or repress the level of prices or economic activity definition of dynamic actions

The interest rate that a bank must pay to borrow from its regional federal reserve bank is called

the Discount Rate

Which of the following statements is correct about the Fed's open-market operations? To encourage deposit growth

the Fed should buy bonds which increases the money supply and increases lending

Bank holding companies are examined by:

the Federal Reserve

The seven-member board of the Federal Reserve that sets monetary policy is called

the Federal Reserve Board of Governors

One of the major weaknesses of the banking system before the Federal Reserve System was set up was:

the arrangement for holding reserves third weakness

In recent years:

the discount rate was lower than the prime rate

The discount rate is:

the rate a bank must pay to borrow from the Fed

Today the responsibilities of the Fed may be described as:

those relating to monetary policy, to supervision and regulation, and to services provided for depository institutions and the government.

The Federal Reserve System's primary method for carrying out monetary policies is:

through open market operations

The Federal Open Market Committee:

was created under a provision of the Banking Act of 1935

. Open market operations:

. are used by the Fed to alter bank reserves

. The least frequently used monetary policy instrument used by the Fed is

. changing the reserve requiremen

A (n) ____________________ 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 United States is a(n) ___________ reserve system because banks are required by the Fed to hold reserves equal to a specified percentage of their deposits.

. fractional

The Truth in Lending Act:

. limits liability on lost or stolen credit cards

A nontraditional monetary policy approach to stimulate economic activity when conventional monetary policy methods are ineffective is called

. quantitative easing

The primary responsibility of the Federal Reserve System is to:

. regulate the growth of the money supply

Which of the following statements is correct about the Fed's open-market operations? To restrict deposit growth

. the Fed should sell bonds which reduces the money supply and reduces lending

The percentage of deposits that must be held as reserves is called

. the required reserve ratio

Under the Federal Reserve Act of 1913, the number of Federal Reserve districts established is:

12

Each member of the Fed Board of Governors is appointed for a term of:

14 years