Problem Set 5
During QE1, the Fed purchased
$1.25 trillion in mortgage-backed securities.
Each Fed bank president attends FOMC meetings; although only ________ Fed bank presidents vote on policy, all ________ provide input.
five; twelve
Assets on the Fed's balance sheet include
government securities and discount loans.
An open market purchase of securities by the Fed will
have no effect on assets of the nonbank public but increase assets of the Fed.
During QE3, the Fed purchased
$40 billion in mortgage-backed securities and $45 billion in long-term Treasuries every month.
During QE2, the Fed purchased
$600 billion in long-term Treasury securities.
In the aftermath of the 2007 financial crisis, the Fed used several programs to increase liquidity, including ________.
All of these choices are correct.
What are the intended consequences from charging interest on excess reserves by Central banks (i.e. negative interest rates on bank deposits)?
Banks lend more money to households and businesses.
Which of the following are not duties of the Board of Governors of the Federal Reserve System?
Setting the maximum interest rates payable on certain types of time deposits under Regulation Q.
Although it enjoys a high degree of autonomy, the Fed is still subject to the influence of Congress because
Congress can pass legislation that would restrict the Fed's independence.
Which type of open market operation is intended to change the level of reserves?
Dynamic open market operations
Which of the following is the major monetary policy-making body of the U.S. Federal Reserve System?
FOMC
Quantitative Easing program initiated by the Federal Reserve during the 2010-2014 period, involved the purchase of long-term corporate bonds.
False
Which Federal Reserve Bank president always has a vote in the Federal Open Market Committee?
New York
Which of the following banks are required to be members of the Federal Reserve System?
None of these
Which of the following functions are not performed by any of the twelve regional Federal Reserve banks?
Setting interest rates payable on time deposits
Which of the following is not an entity of the Federal Reserve System?
The FDIC
The unusual structure of the Federal Reserve System is best explained by Americans' fear of centralized power.
True
The major asset of the Federal Reserve is
U.S. Treasury securities
The financial panic of 1907 resulted in such widespread bank failures and substantial losses to depositors that the American public finally became convinced that
a central bank was needed to prevent future panics.
When the Federal Reserve was created, its most important role was intended to be
a lender of last resort.
The many regional Federal Reserve banks resulted from a compromise between parties favoring
a private central bank and those favoring a government institution.
Members of the Board of Governors are
appointed by the president of the United States and confirmed by the Senate as members resign.
An open market sale of securities by the Fed will
decrease liabilities of the Fed and not affect assets of the banking system.
When a bank repays a discount loan to the Fed, there is a(n) ________ in reserves in the banking system and a(n) ________ in the monetary base.
decrease; decrease
The supply curve for reserves shifts to the left and the federal funds rate rises when the Fed
does an open market sale.
The Fed puts price stability along with maximum employment as its primary goals. This is known as a
dual mandate.
Holding everything else constant, if the federal funds rate rises, then the demand for
excess reserves falls because they have a higher cost.
The Federal Reserve will engage in an outright purchase if it wants to ________ reserves ________ in the banking system.
increase; permanently
If the Fed increases reserve requirements, the demand for reserves ________ and the equilibrium federal funds rate ________.
increases; rises
The Federal Advisory Council has ________ member(s) from each district.
one
Discount loans to healthy banks, who may borrow as much as they wish from the Fed, are called
primary credit.
The directors of a district bank are classified into three categories: A, B, and C. The three B directors are typically
prominent business leaders.
If the Federal Reserve wants to expand reserves in the banking system, it will
purchase government securities.
Regulations making it obligatory for depository institutions to keep a certain fraction of their deposits in accounts with the Fed are
reserve requirements.
Banks' holding of deposits in accounts with the Fed, plus currency that is physically held in banks are called
reserves.
Discount loans to banks experiencing severe liquidity problems are called
secondary credit.
If the Federal Reserve wants to drain reserves from the banking system, it will
sell government securities.
If the Federal Reserve wants to lower the monetary base and the money supply, it will
sell government securities.
An open market purchase
shifts the supply curve for reserves to the right and causes the federal funds rate to fall.
Member commercial banks have purchased stock in their district Fed banks; the dividend paid by that stock is limited to
six percent annually.
Currently the Fed sets monetary policy by targeting
the Fed funds rate.
The actual execution of open market operations is done at
the Federal Reserve Bank of New York.
The type of open market operation intended to offset movements in other factors that affect reserves and the monetary base is
the defensive open market operations.
The discount rate is
the interest rate on loans from the Fed to a bank.
The federal funds rate is
the interest rate on loans of reserves from one bank to another.
The Federal Open Market Committee consists of
the seven members of the Board of Governors and five presidents of the regional Fed banks.
The supply curve for reserves is ________ when the federal funds rate is below the discount rate and ________ when the federal funds rate is above the discount rate.
vertical; horizontal
