Chapter 4

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{ } 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


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