Chapter 16 Money and Banking

A large step toward independence occurred for the Fed in 1935 when the: a. Fed went from two to twelve districts b. Secretary of the Treasury and the Comptroller of the Currency were removed from the Board of Governors c. Chairman of the Board of Governors was no longer a cabinet position d. Fed was given the ability to control its own budget

B

Based on the membership of the Euro system in 2007, the median country is likely to be: a. Very large b. Fairly small c. Italy d. Growing more rapidly than the others

B

By 2007, the euro had become the currency of: a. Every country in Europe b. Thirteen countries in Europe c. Twenty-five countries in Europe d. All European countries except Great Britain

B

Comparing the European and the U.S. central bank systems, the Executive Board of the European system resembles: a. The FOMC b. The Board of Governors c. The Presidents of the regional Federal Reserve Banks d. The Chairman of the Board of Governors of the Fed

B

Considering the Federal Reserve Districts which of the following is true? a. With the exception of New York, no district coincides with a single state b. No district coincides with a single state c. Some districts are made up of single states d. The districts are divided with equal population

B

During World War II, the Fed accommodated the war effort by: a. Significantly curtailing credit in the economy b. Keeping bond prices high and interest rates low c. Selling any Treasury securities the public did not purchase d. Curtailing credit and keeping bond prices high

B

Each president of a Reserve Bank serves for a: a. Fourteen-year term b. Five-year term c. Seven-year term d. Two-year renewable term

B

Executive board members of the European System of Central Banks are appointed by: a. A committee made up of bank presidents in the member countries b. A committee made up of heads of state of member countries c. The finance ministers of member countries d. The directors of the National Central Banks

B

How many members are on the Board of Governors of the Federal Reserve System? a. Twelve, one for each district b. Seven c. Nine d. Fourteen

B

How many members belong to the board of directors for each of the Reserve Banks of the Fed? a. Seven b. Nine c. Twelve d. Fourteen

B

In its role as bank for the U.S. government, the Federal Reserve performs all of the following services, except: a. Issuing new currency b. Making discount loans c. Maintaining the U.S. Treasury's bank account d. Managing U.S. Treasury borrowings

B

In the meetings of the Governing Council of the European Central Bank, formal votes are: a. Taken and published immediately b. Not taken, since formal voting could get in the way of good policy c. Taken but not published for five years d. Taken and released two years after the meetings

B

Now that Ireland is a member of the Euro system it is likely to find that the monetary policy that affects it: a. Is the same as it was when Ireland was not part of the Euro system b. Is likely to tolerate a higher level of inflation in Ireland than in other Euro system countries c. Is not likely to tolerate a higher level of inflation in Ireland than in other Euro system countries d. Has the goal of zero inflation for Ireland

B

One key difference concerning the communications from the Fed's FOMC and the European Systems Governing Council is: a. The leaders of the FOMC answer questions from the financial press after their meetings b. The president and vice-president of the Governing Council hold a news conference after their regular monthly meetings; the leaders of the FOMC hold no such conference c. The Governing Council meetings are open to the public, the FOMC meetings are not d. The statement from the FOMC is typically longer and more detailed than that from the Governing Council

B

One reason it took so long to have a central bank in the United States is that: a. It wasn't needed b. States feared centralization of power c. State currencies worked fine d. All of the above

B

The Chairman of the Board of Governors: a. Serves a four-year term that cannot be renewed b. Is selected from the Board of Governors, appointed by the U.S. President c. Serves the same four-year term as the U.S. President d. Serves an eight-year term

B

The European Central Bank has ensured independence by appointing Executive Board members for: a. Life b. Eight-year non-renewable terms c. Fourteen-year terms d. Twenty-year terms

B

The FOMC controls the real interest rate: a. If inflation changes quickly b. If inflation doesn't change quickly c. Only if it adjusts the federal funds rate to match the changes in the rate of inflation d. Only on an annual basis

B

The Federal Reserve Act explicitly requires that the Board of Governors represents each of the following, except: a. Commercial interests b. Foreign interests c. Financial interests d. Agricultural interests

B

The Federal Reserve was created in: a. 1929 b. 1913 c. 1909 d. 1945

B

The Governors of the Federal Reserve System serve terms of: a. Four years that can be renewed b. Fourteen years c. Four years, the same as the U.S. President, and the terms are not renewable d. Seven years

B

The attendees at the FOMC meetings receive information prior to the meetings that is contained in books with colorful names. The information that is released to the public prior to the meetings is from the: a. Blue book only b. Beige book only c. Blue and green books, but not the beige book d. Beige and blue books but not the green book

B

The federal funds rate is stated as: a. A real interest rate b. A nominal interest rate c. A rate that is automatically indexed to inflation d. The current rate less the expected rate of inflation

B

The federal funds rate is the interest rate: a. The Fed charges banks who borrow from it b. Banks charge each other for overnight loans on their excess deposits at the Fed c. The U.S. Treasury charges banks that need emergency funds d. The FDIC charges banks who need to borrow from it to meet depositor demands

B

The number of voting members on the Federal Open Market Committee is: a. 7 b. 12 c. 19 d. 8

B

The objectives set for the Fed by Congress are: a. Very specific; this adds to the Fed's accountability b. By design, quite vague, allowing the Fed to really set its own goals c. Specific regarding inflation, but vague on all other goals d. Specific on the growth rate for the economy, but vague on all other objectives

B

The three branches of the Federal Reserve System include each of the following, except: a. The Board of Governors b. The Federal Deposit Insurance Corporation c. The Federal Open Market Committee d. The twelve regional Federal Reserve Banks

B

Which of the books used at the FOMC meetings can be characterized as less quantitative than the other two? a. The blue book b. The beige book c. The green book d. The white paper released to the press

B

Which of the books used at the FOMC meetings contains anecdotal information collect by the Federal Reserve Banks? a. The blue book b. The beige book c. Both the blue and green books d. Both the beige and blue books

B

Which of the following cities has a Federal Reserve Bank located in it? a. Denver b. Philadelphia c. Detroit d. Miami

B

Which of the following is (are) not a permanent voting member(s) on the FOMC? a. The seven Governors of the Fed b. The Secretary of the Treasury c. The President of the Federal Reserve Bank of New York d. The chair of the Board of Governors

B

Which statement best completes the following sentence; "The U.S. dollar is to the fifty states as the euro is to."? a. The European Central Bank b. The Euro system c. The National Central Banks d. The European System of Central Banks

B

A national central bank of a country that belongs to the European Union but does not participate in the monetary union would: a. Not be a part of the European System of Central Banks b. Be a member of the European Central Bank c. Be included in the European System of Central Banks but not in the European Central Bank d. Be in both the European Central Bank and the European System of Central Banks

C

A typical FOMC meeting would best be described as: a. An informal meeting with significant give and take among participants b. An informal meeting with the Chairman as a passive observer c. A fairly formal session with not much give and take d. A press conference, where the financial press can ask questions regarding the Fed's view of the economy

C

Buying and selling U.S. Treasury Securities for the Fed's own portfolio is called: a. Managing the float b. Discount buying c. Open market operations d. Reserve adjustment

C

Comparing the European and the U.S. central bank systems, the Governing Council of the European system resembles: a. The Board of Governors b. The Presidents of the Regional Federal Reserve Banks c. The FOMC d. The Chairman of the Board of Governors of the Fed

C

Comparing the FOMC and the ECB's Governing Council: a. The cooperation with fiscal policymakers is the same for both b. There is explicit cooperation with fiscal policy makers and the FOMC c. Member countries in the ECB must meet rigid fiscal requirements d. There is no explicit mechanism for cooperation between fiscal policymakers and either the FOMC or the Governing Council

C

Considering state chartered banks: a. Most elect to join the Federal Reserve System b. Those with assets exceeding $100 million must join the Federal Reserve System c. Most elect not to join the system d. Only those that join the system must abide by reserve requirements

C

Criteria used to judge a central bank's independence include each of the following, except: a. Budgetary independence b. Long terms for members c. Cabinet or ministry level of authority d. Irreversible decisions

C

In its role as the bankers' bank, the Federal Reserve performs all of the following services, except: a. Collecting and making available data on business conditions b. Making discount loans c. Managing U.S. Treasury borrowings d. Clearing paper checks and transferring funds electronically

C

Member banks of the Federal Reserve System include: a. Only nationally chartered banks b. All state chartered banks with assets exceeding $100 million c. Nationally chartered banks and state chartered banks that decide to join d. Nationally chartered banks and all state chartered banks

C

Members of the Board of Governors of the Fed: a. Can be reappointed after their term expires b. Must leave office when there is a new administration elected c. Serve one non-renewable fourteen-year term d. Are appointed for life, though they can resign at any time

C

Most of the Fed's income is: a. Paid to member banks in the form of a dividend b. Sent to the FDIC to shore up the depositor insurance fund c. Returned to the U.S. Treasury d. Used to build the Fed's portfolio of securities

C

Once the FOMC announces the result of its meeting the attendees: a. It must brief the financial news immediately after and answer questions posed to them b. Observe a twenty-four hour blackout period following the meeting during which they do not speak publicly about the economic outlook or current monetary policy c. Observe a blackout period that lasts for a week following the meeting during which they do not speak publicly about the economic outlook or current monetary policy d. Never discuss the policy issues addressed in the meetings

C

Prior to 1980: a. Member banks of the Federal Reserve did not have to hold non-interest-bearing reserve deposits at the Fed b. Nonmember banks had to hold non-interest-bearing reserve deposits at the Fed c. Nonmember banks did not have to hold non-interest-bearing reserve deposits at the Fed d. All banks, member or not, had to hold reserve deposits at the Fed in a non-interest-bearing account

C

The Chairman of the FOMC is: a. The Secretary of the Treasury b. The Vice-Chairman of the Board of Governors c. The Chairman of the Board of Governors d. The President of the New York Fed

C

The ECB's Governing Council has price stability as a primary objective. It has defined price stability as: a. A zero rate of inflation b. An inflation rate less than 5 percent c. An inflation rate close to two percent d. An inflation rate in the three to five percent range

C

The Fed's revenue comes: a. From Congressional appropriation b. From the Department of Commerce c. From internally generated funds from interest on securities it holds and fees charged to banks for payments system services d. Solely from taxes placed on member banks

C

The Federal Reserve Bank of New York is unique from other Reserve banks because it: a. Is the only regional Bank that serves just one state? b. Is the only regional Bank located in a financial center? c. Is where the Federal Reserve System's portfolio is managed d. Is the oldest and therefore the largest

C

The Federal Reserve System is composed of: a. Five branches with clear responsibilities b. Six branches with overlapping responsibilities c. Three branches with overlapping responsibilities d. Twelve branches with clear responsibilities

C

The Federal Reserve's Open Market Committee currently meets: a. Monthly b. Bi-weekly c. Eight times a year d. Once every quarter, unless a crisis warrants more frequent meetings

C

The Governors of the Federal Reserve System are appointed by the: a. Member banks from their home district b. Board of Directors of the Reserve Bank from their home district c. President of the United States d. Chairman of the Federal Reserve System

C

The Treaty of Maastricht was signed in: a. 1999 b. 2001 c. 1992 d. 1997

C

The interest rate changes that result from the FOMC meetings: a. Can be altered only by Congress b. Can be altered by the Secretary of the Treasury during an economic crisis c. Cannot be changed by anyone other than the FOMC d. Can only be altered during a time of crisis by the U.S. President

C

The largest of the regional Federal Reserve Banks is located in: a. Washington D.C b. San Francisco since it serves almost one-third of the country c. New York City d. Kansas City

C

The members of the Board of Governors in recent years have been all of the following, except: a. Former academic economists b. Former economic forecasters c. A current Secretary of the Treasury d. Former bankers

C

The method used by the ECB to measure inflation for meeting its objectives: a. Gives equal weight to each member country b. Gives greater relative weight to smaller countries c. Can result in a contractionary monetary policy being used in a country where inflation is already very low d. Is based on wholesale rather than retail prices

C

The primary purpose of meetings of the FOMC is to: a. Set the required reserve rate b. Set the discount rate c. Decide on the target interest rate d. Set the prime rate

C

The real power in the FOMC lies with: a. The President of the New York Fed Bank b. The System Open Market Manager c. The Chairman of the Board of Governors d. No single individual; all participants have an equal share of the power

C

The services the Federal Reserve provides to foreign central banks and other international organizations are handled: a. Directly by the Board of Governors in Washington D.C b. By all of the Reserve Banks c. Only by the Reserve Bank in New York d. Only by the Reserve Bank in San Francisco

C

Which of the books used at the FOMC meetings is/are treated as secret documents and not released to the public until after a number of years have passed? a. The blue book and the beige book b. The beige book and the green book c. The blue book and the green book d. Only the blue book

C

Which of the books used at the FOMC meetings the Board staff's economic forecast for the new few years? a. The blue book b. The beige book c. The green book d. Both the beige and blue books

C

Which of the following statements best completes the following: "The Fed's independence can only be revoked by "? a. The U.S. President b. The Secretary of the Treasury c. Congress d. Changing the U.S. Constitution

C

Based on the criteria for assessing a modern central bank, the new Bank of Japan (since 1998) appears to meet the requirements for: a. Independence, but not transparency b. Accountability and transparency, but not independence c. Independence and transparency, but not accountability d. Independence, accountability and transparency

D

Changes in the federal funds rate influence the economy's growth rate through all of the following except by: a. Making it more or less attractive to people save b. Making it more or less expensive to borrow c. Making investment spending more or less attractive d. Altering the real interest rate when inflation is changing quickly

D

Comparing the European and the U.S. central bank systems, the National Central Banks that make up part of the European System of Central Banks resembles: a. The U.S. Treasury b. The Board of Governors c. The FOMC d. The regional Federal Reserve Banks

D

Current law regarding the Fed's Board of Governors stipulates that: a. No more than three governors can come from the same district b. No more than two governors can come from the same district c. Every district must have at least one governor on the board d. No more than one governor can come from the same district

D

Member countries of the Euro system agree to: a. Pursue independent domestic monetary policies based on what is best for their own country, but not all member countries have adopted the euro as their currency b. Share a common monetary policy and fiscal policy c. Use the euro as their currency, but each country still pursues an independent monetary policy d. Share a common monetary policy and use the euro as their currency

D

One valuable lesson investors should learn from the stock market behavior during the late 1990s and early 2000s is that the Fed: a. Can control the stock market b. Can reduce the idiosyncratic risk of investing but not the systematic risk c. Can eliminate the risk from investing d. Cannot prevent a stock market decline

D

The Board of Governors of the Fed performs each of the following functions, except: a. Analyzing financial and economic conditions b. Setting the reserve requirement c. Approving bank merger applications d. Making discount loans

D

The Federal Open Market Committee began operating in: a. 1913 b. 1929 c. 1914 d. 1936

D

The Federal Reserve District that covers the largest geographic area is serviced by the Bank located in: a. Chicago b. Richmond c. Atlanta d. San Francisco

D

The Reserve Banks of the Federal Reserve System are owned by: a. The taxpayers in their districts b. The U.S. Treasury c. The Board of Governors d. The commercial banks in their districts

D

The information contained in the Fed's blue and green books is released to the public: a. Immediately after the FOMC meeting in which they are used b. Within two weeks after the FOMC meeting in which they are used c. The material in the green book is never released to the public d. Five years after the FOMC meeting in which they are used

D

The likelihood that the Fed will implement a change that will seriously harm the economy is minimized by the fact that: a. Only bright, well-intentioned people are appointed to key roles at the Fed b. Congress can remove the Chairman of the Fed at any time c. The Board of Governors ultimately must answer to the U.S. President since he can replace them d. There is decision making by committee

D

The lines drawn to establish Federal Reserve Districts were based on: a. Solely population distribution in 1914 b. Solely economic forces that existed in 1914 c. Economic and political forces that existed in 1914 d. Economic and political forces as well as population distribution in 1914

D

The make up of the Governing Council of the European Central Bank and the methods used to calculate price stability for the monetary system can potentially result in: a. Small countries having undue influence on the decisions of the Council b. Monetary policy that is well suited for some countries but ill suited for others c. A policy for the median country rather than a policy well suited for any country d. All of the results listed are possible

D

The number of regional Federal Reserve Banks is: a. Nine b. Seven c. Five d. Twelve

D

The policy directive that is produced from the FOMC meeting: a. Details the exact amount of U.S. Treasury securities the System Open Market Account Manager is to purchase or sell b. Sets the specific discount rate for the next eight weeks c. Sets the specific range that the target interest rate can fall within d. Simply instructs the staff of the New York Fed to buy and sell securities to maintain the market federal funds rate at the target rate

D

Which of the following is a false statement about the structure of the Federal Reserve System? a. Banker and business interests are reflected b. State and regional interests are reflected c. Government (public) and private interests are reflected d. Exporter and importer interests are reflected

D

As a means to make sure the U.S. President cannot unduly influence the Chairman of the Board of Governors: a. The Chairman's term does not coincide with the Presidential term b. The President cannot reappoint the Chairman c. The Chairman cannot serve for more than four years d. The Chairman must be a Governor that was appointed to the Board by another president

A

Currently the requirement of holding a non-interest-bearing reserve account at the Fed must be met by: a. All banks, member or not b. Only member banks c. Member banks and nonmember banks over $100 million in assets d. Only nationally chartered banks

A

Each of the Reserve Banks has a president who is: a. Appointed by the bank's board of directors but approved by the board of governors b. Appointed by the board of governors but approved by the bank's board of directors c. Elected by the commercial banks in their district d. Selected from the Board of Directors

A

France, Germany, and Italy are: a. All members of the European Union and the Euro system b. All members of the Euro system but not the European Union c. All members of the European Union but not the Euro system d. Not members of either the Euro system or the European Union; they have their own economic union

A

Great Britain is: a. A member of the European Union but not a member of the Euro system b. A member of the Euro system but not a member of the European Union c. Not a member of the Euro system or the European Union d. A member of both the European Union and the Euro system

A

Once the FOMC meetings adjourn, the public is made aware of the FOMC's decision: a. Immediately after the meeting b. Forty-eight hours after the meeting adjourns c. Within five business days d. Twenty-four hours after the meeting adjourns

A

The Agreement to form a European monetary union was formalized in the Treaty of: a. Maastricht b. Paris c. Amsterdam d. Milan

A

The European Central Bank has ensured independence by: a. Explicitly forbidding the Governing Council from taking instructions from any government b. Making sure the ECB's financial interests supports member countries' political organizations c. By appointing the Executive board members for life d. Not taking votes on policy matters

A

The Federal Reserve banks play a role in formulating monetary policy by each of the following, except: a. Conducting open market operations from their banks b. Participating in FOMC meetings c. Participation in setting the discount rate d. Making discount loans

A

The interest rate that the FOMC currently chooses to control is: a. The federal funds rate b. The 30-year Treasury bond rate c. The discount rate d. The prime rate

A

The largest Federal Reserve District geographically is serviced by: a. The Reserve Bank in San Francisco b. The Reserve Bank in Chicago c. The Reserve Bank in New York d. The districts are divided fairly equally

A

To ensure that the Board of Governors is not unduly influenced by any one President: a. The appointees to the Board are subject to U.S. Senate confirmation b. The Governors serves short two-year renewable terms c. The Governors must be approved by the Secretary of the Treasury d. The Governors must be approved by both houses of Congress

A

To make sure the U.S. President cannot unduly influence the Board of Governors: a. The terms of the governors are staggered b. The law prevents a resident from appointing more than one governor c. The terms of the governors are ten years long d. Only three governors can be replaced in any one year

A

Which of the books used at the FOMC meetings contains a discussion of financial markets and current policy options? a. The blue book b. The beige book c. The green book d. Both the beige and green books

A

Which of the following cities does not have a Federal Reserve Bank located in it? a. Denver b. Atlanta c. San Francisco d. Chicago

A