M+B Chapter 16
by the President and confirmed by the Senate
Both the Chair and Vice Chair of the Board are appointed by...?
D
Each member of the Board of Governors at the Fed is replaced every _____ year and his/her term expires on the last day of ________. a) odd-numbered; January b) even-numbered; February c) odd-numbered;February d) even-numbered; January
U.S. Treasury securities bought and held at the FRBs
Regional FRBs earn their own income largely from the interest payment on the
MS: Increase IR: Decrease
When the Fed buys T-securities: MS: IR:
Federal Open Market Committee (FOMC)
a committee where the Chair of the Board of Governors, by tradition, serves as its chair and the President of New York FRB as its vice chair because it resides and operates out of the New York FRB.
Fee income
check-clearing, Fed wire-transfer service, etc make income for the FED through...?
FOMC
directs operations in foreign exchange markets and currency swaps with foreign central banks to maintain exchange rate stability
FOMC
has 12 voting members - 7 members of the Board of Governors and 5 presidents of regional FRBs, including the president of New York FRB.
Open Market Operation (OMO)
the main tool of monetary policy
New York Federal Reserve Bank
- Monitors and supervises many largest commercial and investment banks in the district whose health critically determines the state of the U.S. economy. - Represents the U.S. as its central bank to the international community by being a member of the Bank of International Settlement (BIS) which is an organization of central banks in the world.. -Trades the U.S. Treasury securities with primary dealers to carry out Federal open market operations. FOMC conducts OMO from here. - Can trade in the foreign exchange market for exchange rate stability at the request of the U.S. Department of Treasury. - Stores gold for the U.S. and foreign governments in its vault. - Its president is thus the permanent member of the FOMC Who is the most prominent of all FRBs and has all these responsibilities?
12 FRBs
- clear checks. - withdraw and destroy damaged currency from circulation. - issue new currency. - examine bank holding companies, federally chartered banks, and state banks who are members of the Fed. - collect data on local business conditions. - conduct research on economic affairs. Are operation roles of who?
Open Market Operation
1) The Fed buys Treasury securities from the primary dealers (who are the large banks that the Fed approves for this) to lower the Federal Funds interest rate. 2) The Fed sells Treasury securities to the primary dealers to increase the Federal Funds interest rate. These two types are done for what?
New York Fed President
5 of the regional 12 FRB presidents serve on the FOMC as voting members. However, who is a permanent member?
14
7 members of the Board, each with a ___ year nonrenewable term
B
According to Professor Choi, China uses the _________ as the main tool for implementing monetary policy. a) open market operations b) reserve requirements c) discount loans d) all of the above equally
A
According to Professor Choi, the U.S. uses the _________ as the main tool for implementing monetary policy. a) open market operations b) reserve requirements c) discount loans d) all of the above equally
U.S. Treasury
Any excess net earnings of the FRBs must be transferred to the...?
a not-for-profit organization
Each of the 12 FRBs is separately incorporated and...?
1) Reserve requirement 2) Discount loan 3) Open market operation
How does the FED carryout monetary policy?
E
How many of the Federal Reserve Board governors can vote in the Federal Open Market Committee (FOMC)? a) 5 b) 4 c) 12 d) 9 e) 7
A
In which of the following cities, is a regional Federal Reserve Bank located? a) Chicago, Illinois b) Houston, Texas c) Los Angeles, California d) all of the above e) only (a) and (b) of the above
largest source of income to the Fed
Interest income from the U.S. Treasury securities held =
Board of Governors
Serves as the brain of the Fed, with the responsibility of implementing the monetary policy
U.S. Federal government
The Board is a
Open Market Operation
The Fed does this by using the "Repurchase (=Repo)" agreement with primary dealers (=large banks) to lower the Federal Funds interest rate or "Reverse Repo" agreement to raise the interest rate.
appropriations process of the Congress
The Fed earns its own income and thus, not subject to...?
General Accounting Office (GAO), the auditing agency of the federal government
The Fed is not subject to audits for its monetary policy actions by the
required reserve ratio (RRR)
The Fed requires member banks to hold minimum required reserves at a rate of about 10% of the checking account balance. This is called the...?
C
The Federal Reserve System (Fed) must be independent from all political influences because ________. a) An important policy such as monetary policy must be controlled by an exclusive group of elites b) the Congress and the President can do a better job of managing economic growth. c) The monetary policy makers at the Fed must be allowed to have a long-term view d) all of the above e) only (a) and (b) of the above
D
The National Banking Act was passed before ________. a) The Wildcat Banking Act b) The State Banking Act c) The Bank of the United States Act d) The Federal Reserve Act
A
The full term of the Board of Governors is _____ and lasts _____. A) non-renewable; 14 years B) renewable; 14 years C) renewable; without time limit D) non-renewable; 4 years E) non-renewable; 20 years
A
The loan given to banks by the Federal Reserve Bank is known as the ______. a) discount loan b) Federal loan c) subsidy d) all of the above e) only (a) and (b) of the above
B
The position of Chairperson of the Federal Reserve Board is confirmed by the _________. a) President b) Senate c) Congress d) all of the above e) only (a) and (b) of the above
A
The regulatory agency that sets reserve requirements for all banks is A) the Federal Reserve System. B) the Federal Deposit Insurance Corporation. C) the Office of Thrift Supervision. D) the Securities and Exchange Commission.
D
The voting members of the Federal Open Market Committee (FOMC) include ______. a) The chairperson of the Federal Reserve Board b) any member of the Federal Reserve Board c) a few president of the regional Federal Reserve Banks d) all of the above e) only (a) and (c) of the above
D
The voting members of the Federal Open Market Committee (FOMC) include ______. a) The vice chairperson of the Federal Reserve Board b) the president of the New York Federal Reserve Bank c) a few president of the regional Federal Reserve Banks d) all of the above e) only (a) and (c) of the above
Inverse
There is a ____ relationship between changes in RRR and changes in MS
positive
There is a ____ relationship between changes in RRR and changes in interest rate
Inverse
There is a _____ relationship between availability of the discount loan and the interest rate
Positive
There is an _____ relationship between availability of the discount loan and the MS
No debt monetizing
To prevent the U.S. Treasury from possibly forcing the Fed to finance large budget deficits
1) Board of Governors 2) 12 Regional Banks 3) Federal Open Market Committee
What are the 3 major components of the Fed?
to regulate the federal funds rate by buying or selling T-securities
What is the FOMC's main charge?
1) Establish discount rate 2) Approve which banks receive discount loans
What specific role do the 12 FRBs perform in monetary policy?
C
What year was the Federal Reserve Act passed? a. 1900 b. 1911 c. 1913 d. 1943 e. none of the above
MS: Increase IR: Decrease
When the Fed decreases RRR, less money is kept at the bank and thus, more lending which means that: MS will...? IR will...?
MS: Decrease IR: Increase
When the Fed decreases the amount of DLs to member banks: MS: IR:
MS: Decrease IR: Increase
When the Fed increases RRR, more money is kept at the bank and thus, less lending which means that: MS will...? IR will...?
MS: Increase IR: Decrease
When the Fed increases the amount of DLs to member banks: MS: IR:
it is a not-for-profit organization
When the Fed makes profit, it must return it to the U.S. Treasury because...?
MS:Decrease IR: Increase
When the Fed sells T-securities: MS: IR:
E
When the Federal Reserve System (Fed) makes profits, the Fed must _________. a) retain the profit and use it for worthy causes b) distribute to other not-for-profit organizations c) all of the above d) donate it in the form of foreign aids e) return the profit to the U.S. Treasury Department
C
When the Federal Reserve System buys the U.S. Treasury securities from banks, this will ______ money supply and thus, will result in ______ interest rates. a) increase; higher b) decrease; lower c) increase; lower d) decrease; higher
E
When the Federal Reserve System wants to increase liquidity in the economy, it can _______. a) buy the U.S. Treasury securities from banks b) sell the U.S. Treasury securities to banks c) lower the required reserves at the banks d) all of the above e) only (a) and (c) of the above
A
Which member(s) of the Fed's Board of Governors are appointed by the President and confirmed by the Senate. a) Chairperson b) all of the 12 regional Federal Reserve Bank presidents c) New York Federal Reserve Bank President d) all of the above e) only (a) and (b) of the above
D
Which of the following are NOT funded by the Congress's Appropriation Process? a) The Federal Reserve Board b) The 12 regional Federal Reserve Banks c) The Federal Open Market Committee d) All of the above e) None of the above
E
Which of the following are funded by the Congress's Appropriation Process? a) The Federal Reserve Board b) The 12 regional Federal reserve Banks c) The Federal Open Market Committee d) All of the above e) None of the above
D
Which of the following constitutes the Fed (=Federal Reserve System)? A) The Board of Governors B) The 12 regional Federal Reserve Banks C) The Federal Open Market Committee D) All of the above E) Only (a) and (c) of the above
E
Which of the following does not ensure the independence of the Federal Reserve System (Fed) from political influences? a) The position of the Chairperson of the Board of Governors has a 4-year renewable term. b) The Fed is subject to the Congressional hearings under the Humphrey-Hawkins Act c) The Fed has to recieve its annual budget from the Congress. d) all of the above do not ensure the Fed's independence e) Only (a) and (b) of the above
A
Which of the following does not ensure the independence of the Federal Reserve System (Fed) from political influences? a) The position of the Chairperson of the Board of Governors has a 4-year renewable term. b) The Fed is not subject to audit for its monetary policy actions c) The Fed earns its own income. d) all of the above ensures the Fed's independence e) Only (a) and (c) of the above
D
Which of the following ensures the independence of the Federal Reserve System from political influences? a) Members of the Board of Governors have a non-renewable 14-year term b) The Fed Chairperson does not have to report to the President of the U.S. c) The Fed earns its own income. d) all of the above ensures the Fed's independence e) Only (a) and (c) of the above
E
Which of the following ensures the independence of the Federal Reserve System from political influences? a) Members of the Board of Governors have a non-renewable 14-year term b) The Federal Reserve Banks guarantee their employees permanent job c) The Fed earns its own income. d) all of the above ensures the Fed's independence e) Only (a) and (c) of the above
A
Which of the following ensures the independence of the Federal Reserve System from political influences? a) Members of the Board of Governors have a non-renewable 14-year term b) The Federal Reserve Banks guarantee their employees permanent job c) The headquarters of the Fed's Board of Governors is located in Washington, D.C. d) all of the above ensures the Fed's independence e) Only (a) and (b) of the above
A
Which of the following functions does each of the 12 regional Federal Reserve Banks NOT play? a) examine large insurance companies b) issue new currency c) conduct research on economic affairs d) all of the above e) only (b) and (c) of the above
D
Which of the following functions does each of the 12 regional Federal Reserve Banks play? a) clear checks b) destroy worn-out, damaged money c) issue new currency d) all of the above e) only (b) and (c) of the above
D
Which of the following functions does each of the 12 regional Federal Reserve Banks play? a) establish the discount rate b) approve the discount loan c) clear checks d) all of the above e) only (a) and (b) of the above
E
Which of the following is a monetary policy tool used by the Fed? a) the open market operations b) the prudent supervision of large banks c) the reserve requirements d) all of the above e) only (a) and (c) of the above
E
Which of the following is a source of income to the Federal Reserve System (Fed)? a) The interest income from the discount loans made b) The collection of taxes from member banks c) The interest earned on the U.S. Treasury securities bought and held at the Fed d) all of the above e) only (a) and (c) of the above
C
Which of the following is an argument for the independence of the Federal Reserve System (Fed) from all political influences? a) It is undemocratic to have monetary policy controlled by an elite and exclusive group b) To achieve economic goals, it makes sense to place both monetary and fiscal policies under the control of the Congress and the President. c) debt monetiazing must not occur d) all of the above e) only (a) and (b) of the above
C
Which of the following is the largest source of income to the Federal Reserve System (Fed)? a) The fee income from check-clearing and wire-transfer services. b) The interest earned on the discount loans made c) The interest earned on the U.S. Treasury securities bought and held at the Fed d) all of the above e) only (a) and (b) of the above
D
Which of the following is true about the New York Federal Reserve Bank? a) monitors and supervises large banks b) represents the U.S. as its central bank to the rest of the world c) is a member of the Bank of International Settlement (BIS) d) all of the above e) only (a) and (b) of the above
E
Which of the following is true about the New York Federal Reserve Bank? a) stores gold for the U.S. government b) stores gold for foreign governments c) stores gold for large commerical corporations d) all of the above e) only (a) and (b) of the above
discount loan
is a loan given to the member banks at their request by the FRB. Banks usually use this discount window facility as a last resort
