CHAPTER 11 - CENTRAL BANKING - Economics
has no effect on the money supply
The Fed shreds of $100 billion worth of worn-out currency and replaces it with new bills. - What will the result be? decreases the money supply has no effect on the money supply increases the money supply
tight monetary supply
The Fed's actions reduce the money supply tight monetary policy loose monetary policy
true
The Federal Reserve System can create money. true false
true
Alan Greenspan served as chair of the Federal Reserve Board of Governors from 1987 to 2006. true false
Bankers
By taking deposits from and making loans to commercial banks, the Federal Reserve has come to be known as the ____ Bank
true
Congress designed the Fed to be the banker's bank-to serve as the lender of last resort. It creates and lends enough currency to banks to allow them to satisfy their panicking depositors. true false
false
Congress does not have the power to abolish the Federal Reserve System true false
true
Congress has granted INDEPENDENCE to the Federal Reserve, allowing it to operate with no outside control and little supervision. true false
true
Congress has the power to abolish the Federal Reserve System. true false
false
Congress selects each member of the Board of Governors. true false
chair of the Board of Governors
Give the position or title of the most influential person at the Federal Reserve System.
true
Governmental securities are Treasury notes, Treasury bills and Treasury bonds. true false
Greenspan
He served as Chair of the Federal Reserve for more than seventeen years.
true
If the Fed were to expand the money supply continually, the economy would accelerate too much, too fast, causing inflation and overheating of the economy. true false
buy governmental securities
If the economy is threatened with a slowdown, how would you expect the Fed to respond? sell governmental securities buy governmental securities increase the reserve requirement increase the discount rate
5
If the money multiplier is five and the Fed wants to add $25 billion to the money supply, the Fed will buy $_________ billion worth of governmental securities. (Enter a numeric answer only.)
politically financially operationally
In what 3 ways is the Fed independent of outside control? politically financially operationally economically stability
1913
In what year was the Federal Reserve System created? 1875 1913 1929 1933
yes
Is the Fed an independent organization? yes noe
policy
Monetary _______________ is the increasing or decreasing of the money supply to influence the economy.
elastic
Money is said to be ____ if its supply has the ability to expand and contract.
false
No one except the president of the United States may look at the Fed's books without its permission. true false
true
The FOMC affects the money supply by buying and selling governmental securities such as Treasury bills, Treasury notes and Treasury bonds. true false
increases the money supply
The FOMC buys $8 billion in securities from banks. - What will the result be? decreases the money supply has no effect on the money supply increases the money supply
decreases the money supply
The FOMC sells $ 3 billion in securities to banks - What will the result be? decreases the money supply has no effect on the money supply increases the money supply
has no effect on the money supply
The Fed accepts a $1 billion deposit from the federal government. - What will the result be? decreases the money supply has no effect on the money supply increases the money supply
true
The Fed always refers to the Federal Reserve System and not the federal government true false
has no effect on the money supply
The Fed clears $100 million in checks and online transactions. - What will the result be? decreases the money supply has no effect on the money supply increases the money supply
true
The Fed functions as the nation's fiscal agent. true false
increases the money supply
The Fed lowers the discount rate. - What will the result be? decreases the money supply has no effect on the money supply increases the money supply
increases the money supply
The Fed lowers the reserve requirement from 12 percent to 10 percent. - What will the result be? decreases the money supply has no effect on the money supply increases the money supply
decreases the money supply
The Fed raises the discount rate. - What will the result be? decreases the money supply has no effect on the money supply increases the money supply
loose monetary policy
The Fed's actions increase the money supply tight monetary policy loose monetary policy
lending money to banks.
The Fed's practice of discounting refers to its writing off banks' debts reducing the money supply. lowering of interest rates. lending money to banks.
true
The Federal Open Market Committee affects the money supply by buying and selling governmental securities. true false
true
The Federal Reserve Act divided the nation into 12 because each area of the nation had different financial needs and no area should be dependent upon another for its finances. true false
12
The Federal Reserve System divides the nation into how many districts? 6 8 10 12
true
The Federal Reserve controls the money supply by influencing the INTEREST RATE. true false
true
The Federal Reserve is an example of a central bank of a nation. true false
Governors
The Federal Reserve is controlled by the Board of ___
true
The Federal Reserve is financially independent in that it does not require any funding from the government. true false
resort
The Federal Reserve is said to be the "lender of the last ___ "
fiscal
The Federal Reserve is the government's bank; it is also called the nation's ____ agent
inflation
The Federal Reserve may attempt to keep the money supply growing at the same rate as the growth of nation's production of goods and services to avoid _____
open market operations
The Federal Reserve's buying and selling of government securities is called _____
prices interest rates
The Feds changing of the supply money affects the economy in what two areas? prices interest rates discount rates inflation
false
The United States Constitution established a central bank. true false
Reserve Requirement
The __ forces the commercial banks to hold specified percentage of each deposit.
true
The basic purpose of a central bank is its use by a nation's government to control and accommodate that nation's finances. true false
FOMC
The initials of Federal Reserve organization that buys and sells securities
discount rate
The interest rate a commercial bank would pay the Federal Reserve on borrowed funds is the ____ discount rate Fed funds rate reserve rate prime rate
discount
The interest rate the Federal Reserve charges banks for loans
multiplier
The money ____ effect explains how a deposit is lent, deposited, relent, causing the money supply to grow.
multiplier
The money _________________________ effect is the expansion of the money supply as a result of commercial banks' lending their depositors' money to others.
FED
The nickname for the Central Bank of US is ___
twelve
The number of Federal Reserve districts that the nation is divided into
seven
The number of members on the Federal Reserve Board of Governors is __
true
The term "run on the bank" is the same as bank panic. true false
a currency that can expand with the economy
The term elastic applies specifically to what kind of currency? a currency that can expand with the economy a currency that is not tied to the gold standard a currency that rebounds quickly from recession a currency that is uniform throughout the country
monetary policy
What do you call the actions of the Federal Reserve that change the money supply
run on the bank
What do you call when account holders of a bank empty out their accounts by coming to the bank or making online transfers
prices fall
What happens to prices if the supply of money remains unchanged while the number of goods and services increases? Prices fall. Prices rise. Prices remain stable. Prices sporadically rise and fall.
Federal Open Market Committee
What institution makes major decisions regarding the money supply? Federal Reserve district banks US Treasury Federal Open Market Committee stock market
fees charged to banks
What is one way the Fed receives its operating funds? congressional budget fees charged to banks trust fund creating elastic currency
president of New York's Federal Reserve bank
What one person is specifically required to sit on the Federal Open Market Committee? vice president of the United States chair of the Fed's Board of Governors secretary of commerce president of New York's Federal Reserve bank
run on the bank or bank panic
What term or phrase is used to describe a time when many people are removing their money from a bank at the same time?
open market operations
Which method of changing the money supply does the Fed most commonly use? open market operations changing the discount rate changing the reserve requirement granting charters
provides a national check-clearing system
Which of the following is a function of a central bank? provides a means of efficiently collecting taxes acts in the place of a commercial bank provides a national check-clearing system acts as a lender of last resort for businesses
clearing credit card transactions
Which of the following is not one of the Fed's major functions? clearing credit card transactions regulating member banks serving as the banker's bank creating money
none of the above
Which of the following is not one of the major economic services provided by the Federal Reserve? providing a uniform currency providing an elastic currency regulating state banks that are Fed members none of the above
fees charged to commercial banks for Fed services
Which of the following is one of the Fed's sources of operating funds? the federal budget the Fed funds trust fund fees received from Congress for the creation of new currency fees charged to commercial banks for Fed services
Federal Open Market Committee
Which of the following is responsible for making decisions about increasing and decreasing the supply of money through the purchasing and selling of securitities? Federal Reserve Board of Governors Federal Advisory Council Federal Open Market Committee Federal Reserve Banks
Congress
Which of the following organizations in the United States is not able to create money? Congress the United States Treasury financial institutions the Federal Reserve System
the commercial banking system
Which of the following plays the greatest role in creating money in the United States? the commercial banking system the Federal Reserve System the United States Treasury All the above are equal creators of money in the United States today
decreasing the reserve requirement
Which would be an example of a loose monetary policy? increasing the discount rate open market sales of securities to the public decreasing the reserve requirement all the above
increase reserve requirement
Which would decrease the money supply, an increased or decreased reserve requirement?
representative of congress
Who is not included on the board of directors for a Federal Reserve district bank? representatives of Congress bankers businesspersons representatives of the public
bankers
Who of the following would serve on the Federal Reserve bank's board of directors? bankers members of the United States Senate members of the United States Representative members of the Federal Reserve Board of Governors
the Board of Governors
Who or what is responsible for guiding the Fed?
president of the United States
Who selects the members of the Fed's Board of Governors? United States Congress president of the United States Federal Reserve district banks American voters
Congress wanted the money supply to be free from political control.
Why is the Federal Reserve independent of Congress? The president created the Federal Reserve. Congress could not reach a compromise when it created the Federal Reserve. Congress wanted the money supply to be free from political control. Congress wanted the Federal Reserve to be free from bureaucracy.
Federal Reserve System
___ is a government institution responsible for overseeing the issuance of currency, regulating banking activity and providing banking services to the nation's commercial banks.
Monetary policy money supply
_____ is the actions of the Federal Reserve to increase or decrease the ____ in order to influence the economy.
elastic currency
a money supply that can be expanded or contracted reserve requirement discounting elastic currency open market operations money multiplier
reserve requirement
a specified percentage of depositors' money that must be kept on hand by banks reserve requirement discounting elastic currency open market operations money multiplier
true
A TIGHT money policy reduces the money supply. true false
illiquid
A bank is said to be ___ if it does not have enough money to meet deposit withdrawals or satisfy legitimate loan requests without delay. liquid illiquid
decreases the money supply
A commercial bank pays off a loan that it received from the Fed. - What will the result be? decreases the money supply has no effect on the money supply increases the money supply
false
Congress can examine the Fed's books without its permission. true false
no
Does the Fed continually expand the money supply? yes no
Distrust
Each Federal Reserve ____ in the US has a central bank to help insure financial representation from all sections of the country.
It holds the government's account.
How does the Fed act as a fiscal agent? It holds the government's account. It serves as a lender of last resort. It regulates member banks. It clears checks.
7
How many persons serve on the Federal Reserve Board of Governors? 3 7 12 14
true
If a bank cannot meet the peoples' withdrawal requests, they panic, causing a bank panic or run on the bank. true false
true
Members of the Fed's Board of Governors may serve fourteen years without reappointment true false
true
To buy governmental bonds, the Fed creates its own money by adjusting its books. true false
US Treasury
Who mints money? Internal Revenue Service US Treasury commercial banks Federal Reserve Bank
money multiplier
the factor that represents the number of times a deposit may be multiplied as it experiences the money multiplier effect reserve requirement discounting elastic currency open market operations money multiplier
discounting
the lending of money to banks by the Federal Reserve System reserve requirement discounting elastic currency open market operations money multiplier
open market operations
the purchase or sale of governmental securities by the Federal Reserve system to inject or withdraw money from the money supply reserve requirement discounting elastic currency open market operations money multiplier