Chapter 15 Review Questions

26. Which of the following statements is true? a. If the Fed wants to decrease money supply, it sells government securities. b. If the Fed wants to increase money supply, it sells government securities. c. If the Fed wants to decrease money demand, it sells government securities. d. If the Fed wants to increase money demand, it sells government securities.

a. If the Fed wants to decrease money supply, it sells government securities.

Which of the following statements is true? a. The Fed does not need to rely on the Government for its operating funds. b. Open market operations can be used by the Fed only to tighten monetary policy and not to ease it. c. The Board of Governors of the Fed is headed by the President of the United States. d. The operations of the Fed are deeply dependent on the actions of the ruling political power.

a. The Fed does not need to rely on the Government for its operating funds.

Which of the following statements is true? a. The annual income from securities far exceeds the annual expenditures of the Federal Reserve Bank. b. The Federal Reserve Bank's president is elected for a fourteen year renewable term. c. All banking services provided by the Federal Reserve Bank are free of charge. d. The Federal reserve Bank delegates its open market operations to smaller commercial banks.

a. The annual income from securities far exceeds the annual expenditures of the Federal Reserve Bank.

Which Fed chairman ensured the independence of the Federal Reserve in the 1950s? a. William McChesney Martin b. Arthur Burns c. Paul Volcker d. G. William Miller

a. William McChesney Martin

Each Federal Reserve Bank is a. a corporation. b. a government owned enterprise. c. a publicly traded company. d. a government-sponsored enterprise.

a. a corporation.

Open-market operations are purchases and sales of a. government securities in the secondary market. b. government securities in the primary market. c. corporate bonds in the secondary market. d. corporate bonds in the primary market.

a. government securities in the secondary market.

The directors of a Federal Reserve Bank include a. three class A directors, who are bankers and are chosen by member banks; three class B directors, who are business leaders and are also chosen by member banks; and three class C directors, who are public-interest directors and are chosen by the Board of Governors. b. three class A directors, who are bankers and are chosen by member banks; three class B directors, who are politicians and are also chosen by member banks; and three class C directors, who are public-interest directors and are chosen by the Board of Governors. c. three class A directors, who are bankers and are chosen by public voting; three class B directors, who are politicians and are also chosen by member banks; and three class C directors, who are public-interest directors and are chosen by the Board of Governors. d. three class A directors, who are bankers and are chosen by member banks and three class B directors, who are business leaders and are also chosen by public voting.

a. three class A directors, who are bankers and are chosen by member banks; three class B directors, who are business leaders and are also chosen by member banks; and three class C directors, who are public-interest directors and are chosen by the Board of Governors.

Publications of the Federal Reserve Bank such as the economic review are available a. to the public for free. b. only to the President of the United States. c. only to members of the Federal Reserve Bank. d. to all individuals willing to pay a fixed annual subscription charge.

a. to the public for free.

A Federal Reserve policymaker voting to keep the federal funds rate unchanged is most likely voting for option a. A. b. B. c. C. d. D.

b. B.

In which of the following cities is a Federal Reserve Bank NOT located a. Richmond. b. Denver. c. Kansas City. d. St. Louis.

b. Denver.

Which of the following statements is true? a. If the Fed wants to decrease money supply, it buys government securities. b. If the Fed wants to increase money supply, it buys government securities. c. If the Fed wants to decrease money demand, it buys government securities. d. If the Fed wants to increase money demand, it buys government securities.

b. If the Fed wants to increase money supply, it buys government securities.

There is strong evidence that political business cycles are prevalent in a. Germany. b. Japan. c. the U.S. d. New Zealand.

b. Japan.

Shares in the Federal Reserve Banks are owned by a. the federal government of the United States. b. banks that are members of the Federal Reserve System. c. the governments of the states in which they are located. d. private citizens who own stock in them.

b. banks that are members of the Federal Reserve System

The interest rate on short-term loans between banks is known as the a. primary credit discount rate. b. federal funds rate. c. commercial paper rate. d. T-bill rate.

b. federal funds rate.

The main object of FOMC voting is to set the target a. inflation rate. b. federal funds rate. c. unemployment rate. d. foreign exchange rate.

b. federal funds rate.

Federal Reserve Banks mostly pay for their central banking operations through a. government tax revenue. b. interest on the securities they own. c. fees charged to banks that use their services. d. dividends paid by local banks.

b. interest on the securities they own

A transaction in which the Fed agrees to buy a security one day and sell it back the next day is referred to as a(n) a. overnight securitization operation. b. repurchase agreement. c. legal tender. d. rebate sale.

b. repurchase agreement.

Each of the following helps the Federal Reserve to be independent of the federal government except a. the fourteen-year terms of the governors. b. the establishment of the Fed in the Constitution. c. the staggered terms of the governors. d. the independence of the Fed's income.

b. the establishment of the Fed in the Constitution.

When the Fed engages in an overnight reverse repo a. a bank agrees to hold a certain amount of clearing balances at the Fed. b. the fed sells securities and agrees to buy them back in one day. c. a primary government securities dealer agrees to sell a security to the Fed one day and buy it back the next day. d. The Fed repossesses property that a bank owns as punishment for the bank's failure to pay off a discount loan.

b. the fed sells securities and agrees to buy them back in one day.

Compiling information on basic economic variables such as the unemployment rate and inflation rate is referred to as _______ among Fed members. a. code-halo analytics b. up-and-down economics c. real-time data mining d. economic sequencing

b. up-and-down economics

One half of a percentage point equals _________ basis points. a. 0.5 b. 5 c. 50 d. 500

c. 50

The Fed document that shows different policy options is called the a. Beigebook. b. Greenbook. c. Bluebook. d. Redbook.

c. Bluebook.

A Federal Reserve policymaker voting to tighten monetary policy is most likely voting for option a. A. b. B. c. C. d. D.

c. C.

How long is the normal term in office for a Governor of the Federal Reserve Board? a. Five years b. Seven years c. Fourteen years d. Life

c. Fourteen years

Under which Fed Chairman did the inflation rate decline the most? a. William McChesney Martin b. Arthur Burns c. Paul Volcker d. Alan Greenspan

c. Paul Volcker

The chairman of the Federal Reserve Board, under whose leadership the inflation rate reduced from about 10 percent to about 4 percent in the 1980s was a. Arthur Burns. b. G. William Miller. c. Paul Volcker. d. Alan Greenspan.

c. Paul Volcker.

When the Fed engages in an overnight repo a. a bank agrees to hold a certain amount of clearing balances at the Fed. b. a secondary government securities dealer agrees to buy a security from the Fed one day and sell it back the next day. c. a primary government securities dealer agrees to sell a security to the Fed one day and buy it back the next day. d. The Fed repossesses property that a bank owns as punishment for the bank's failure to pay off a discount loan.

c. a primary government securities dealer agrees to sell a security to the Fed one day and buy it back the next day.

The Beigebook is a. a report on recent international economic conditions and forecasts for the next two years. b. a discussion of alternative policy choices and the implications of those choices. c. a report on local economic conditions. d. a report on Federal revenue and expenditure.

c. a report on local economic conditions.

One-hundredth of a percentage point is called a(n) __________ point. a. stock b. basic c. basis d. federal interest

c. basis

A Federal Reserve policymaker voting for option A is most likely doing so because of a need to a. tighten monetary policy. b. maintain monetary policy at an unchanged level. c. ease monetary policy. d. give the chairman discretion to change monetary policy.

c. ease monetary policy.

In 2006, Chairman Greenspan left the Fed because a. President Bush wanted him to resign. b. he reached mandatory retirement age. c. his term as Governor expired. d. his term as Chairman expired.

c. his term as Governor expired.

When a central bank is not independent, the main economic variable that is affected is a. unemployment. b. output growth. c. inflation. d. consumption spending.

c. inflation.

The discount rate is the a. targeted inflation rate for an economy. b. ongoing taxation rate in an economy. c. interest rate that the Fed charges on the loans it makes. d. nominal interest rate charged by financial intermediaries when they advance loans.

c. interest rate that the Fed charges on the loans it makes.

Primary government securities dealers are that meet certain capital requirements and agree to actively transact with the Fed when it engages in open-market operations. a. small investment banks and brokers b. large stockbrokers c. large investment banks and brokers d. community banks and credit unions

c. large investment banks and brokers

Of the nine directors of each Federal Reserve Bank, _________ are elected by member banks. a. zero b. three c. six d. nine

c. six

The Open Market Desk is located at a. the Federal Reserve Bank of Boston. b. the Federal Reserve Bank of Philadelphia. c. the Federal Reserve Bank of New York. d. the Federal Reserve Bank of Chicago.

c. the Federal Reserve Bank of New York.

During the period when Ben Bernanke was the Fed's Chairman, the inflation rate averaged at about 1.7%. In comparison to other periods when the Fed was headed over by other chairmen, this inflation rate can be considered to be a. average. b. the highest. c. the lowest. d. above average but not the highest.

c. the lowest.

There are __________ Federal Reserve Banks located around the United States. a. seven b. ten c. twelve d. fifteen

c. twelve

The Federal Reserve publication that discusses forecasts for the economy is known as the a. Redbook. b. Beigebook. c. Bluebook. d. Greenbook.

d. Greenbook.

The __________ appoints one of the members of the Federal Reserve Board of Governors as chairman of the Board of Governors for a __________ , __________ term. a. President of the United States; non-renewable; fourteen-year b. Board of Directors; renewable; five-year c. U.S. Senate; non-renewable; seven-year d. President of the United States; renewable; four-year

d. President of the United States; renewable; four-year

When monetary policy eases before elections to favor incumbent politicians, it is referred to as a. a liquidity trap. b. an expectations trap. c. political creative destruction. d. a political business cycle.

d. a political business cycle.

Open-market operations are carried out between the Open Market Desk of the Fed and a. foreign central banks. b. the U.S. government. c. citizens residing in the U.S. d. primary government securities dealers.

d. primary government securities dealers.

In the Federal Open Market Committee, a. the Federal Reserve Bank of Kansas City always votes. b. the Federal Reserve Bank of Washington always votes. c. the Federal Reserve Bank of San Francisco always votes. d. the Federal Reserve Bank of New York always votes.

d. the Federal Reserve Bank of New York always votes.

Expenditures of each Federal Reserve Bank are approved by a. the U.S. Senate. b. the President of the United States. c. the U.S. Treasury Department. d. the Federal Reserve Board of Governors.

d. the Federal Reserve Board of Governors.

The main advisors of the Chairman of the Federal Reserve Board of Governors are a. private economists hired as consultants. b. the Council of Economic Advisors. c. the U.S. Treasury Department. d. the directors of the three staff divisions of the Board.

d. the directors of the three staff divisions of the Board.

Voting members of the FOMC include a. the seven Federal Reserve governors, the presidents of the Federal Reserve Banks of New York, San Francisco, and Chicago, and the presidents of four other Federal Reserve Banks, on a rotating basis. b. five of the seven Federal Reserve governors and the presidents of five Federal Reserve Banks on a rotating basis. c. all of the Federal Reserve governors and the presidents of all Federal Reserve Banks. d. the seven Federal Reserve governors, the president of the Federal Reserve Bank of New York, and the presidents of four other Federal Reserve Banks on a rotating basis.

d. the seven Federal Reserve governors, the president of the Federal Reserve Bank of New York, and the presidents of four other Federal Reserve Banks on a rotating basis.