ch 14 smartbook, fed practice quiz, and monetary policy practice quiz

The key decision-makers of the U.S. money and banking system are the ______ of the Federal Reserve System.

Board of Governors

The key decision maker for general Federal Reserve policy is the

Board of Governors. Explanation The Board of Governors is at the top of the Federal Reserve System's organization chart.

Checks are cleared between private banks by

12 regional federal reserve banks Explanation The clearinghouse service is an important feature of the Federal Reserve System.

the Board of Governors of the Fed

consists of seven members appointed by the President of the United States, who together act as the key decision-making entity for monetary policy Explanation The Board of Governors is the key decision maker for monetary policy and members are appointed by the President of the United States.

Lowering the reserve ratio enhances the ability of banks to

create money

In the United States, the monetary authorities are members of the Board of Governors of the:

Federal Reserve System

U.S. monetary policy relies on the

Federal Reserve System's control over the money supply Explanation The Federal Reserve is the government agency that controls the nation's money supply and this body manipulates the money supply to indirectly influence aggregate demand.

The Fed can directly manipulate the reserve ratio in order to influence the ability of banks to do what?

Make loans

the discount rate is the interest rate charged by

The Federal Reserve when it lends money to private banks. Explanation This is the interest rate the Fed charges for lending reserves to private banks.

Which of the following is true about the chairman of the Federal Reserve Board of Governors?

The chairman can be reappointed for more than one term. Explanation The chairman may be reappointed for successive terms.

The volume of trading in the government bond market exceeds $1 trillion

a day

Because banks continually seek to keep excess reserves at Blank______, they run the risk of falling below reserve requirements.

a minimum

The 12 regional Fed banks do not

accepts deposits from individuals Explanation The Fed banks act as a central bank for private banks, not for individuals.

the reserve requirement

affects the level of bank reserves Explanation Reserve requirements have great power over the lending behavior of individual banks.

required reserves

are the minimum amount of reserves a bank is required to hold Explanation Banks must hold a minimum amount of deposits in reserve.

if a bank does not have enough reserves, it can

borrow reserves from the discount window Explanation If a bank finds itself short of reserves, it may borrow money from the Fed's discount window.

When the Federal Reserve Blank______ the public, bank reserves increase and the money supply increases.

buys bonds from

a change in the reserve requirement is the tool used least often by the Fed because it

can cause abrupt changes in the money supply Explanation A change in reserve requirements changes both the money multiplier and the level of excess reserves in the banking system.

if the Fed wishes to increase the money supply it can

decrease the discount rate Explanation By lowering the discount rate, the Fed makes it less costly for private banks to borrow funds directly from the Fed. This will make it more likely that private banks loan as much possible to maximize profits, since any reserve shortfall can be met inexpensively using the discount window. The increase in excess reserves being loaned out is what will increase the money supply.

An increase in the reserve requirement causes a(n) Blank______ in excess reserves and a(n) Blank______ in the money multiplier.

decrease; decrease

Which of the following is NOT a basic monetary policy tool used by the Fed?

deposit insurance Explanation Deposit insurance is not a monetary policy that is regulated by the Fed; it is instead controlled by the Federal Deposit Insurance Corporation.

The Fed has the power to set the _______ interest rate at which commercial banks borrow from Federal Reserve banks.

discount

The interest rate that Federal Reserve Banks charge on loans they grant to private banks is called the ______ rate.

discount

The Fed has the power to set the:

discount rate

The interest rate that Federal Reserve Banks charge on loans they grant to private banks is called the

discount rate

suppose the fed decreases interest rates by half of a percent. the Fed has most likely reduced the

discount rate Explanation The discount rate is the interest rate the Fed charges to make direct loans to banks. By decreasing this rate, it effectively increases the money supply, which exerts downward pressure on interest rates.

by raising or lowering the ____, the Fed changes the cost of money for banks, which impacts the incentive to borrow reserves.

discount rate Explanation By raising the discount rate, the Fed makes it more costly for private banks to borrow funds directly from the Fed. This will make it more likely that private banks hold on to additional reserves so they can avoid using the discount window.

if a private bank lends money to another bank, the interest rate that is charged for the loan is the

federal funds rate Explanation Banks lend to other banks and charge the Federal Funds Rate which the Fed targets with its policy options.

the rate of interest banks charge each other for lending reserves is the

federal funds rate Explanation Interbank borrowing occurs in the federal funds market and the interest rate banks charge each other is the federal funds rate.

Certificates acknowledging a debt and the amount of interest to be paid each year until repayment (i.e., an IOU) that are issued by governments are known as

government bonds

Open market operations consist of the buying and selling of Blank______ to and from the general public

government bonds

which of the following functions does the Fed perform?

holding bank reserves Explanation The Fed holds bank reserves for private banks to later use.

Members of the Federal Reserve Board of Governors are appointed for one fourteen-year term

in an effort to isolate the Fed from political pressures. Explanation The length of their term is intended to give the Fed governors a measure of political independence.

The basic money supply

includes currency and transactions accounts. Explanation The basic money supply includes currency held by the public, plus balances in transactions accounts.

A decrease in the reserve requirement causes a(n) ______ in excess reserves and a(n) ______ in the money multiplier.

increase; increase

when the Federal Reserve purchases bonds from the public, bank reserves Blank______ and the money supply Blank______.

increase; increases

The federal funds rate is the rate of _______________ (enter one word) that banks charge one another on overnight loans.

interest

the discount rate

is the rate of interest charged by the Fed when it lends money to private banks Explanation The discount rate is the rate of interest charged by the Federal Reserve banks for lending reserves to private banks.

All of the following are true about the basic money supply except

it includes credit card balances. Explanation The basic money supply includes currency held by the public, plus balances in transactions accounts.

The principal mechanism for directly altering the reserves of the banking system is:

open market operations

The use of money and credit controls to change macroeconomic activity is known as

monetary policy. Explanation Monetary policy uses changes to the money supply to indirectly influence the aggregate demand for an economy.

The Fed's major goal is to control

money supply

Which of the following consists of the buying and selling of government bonds to and from the general public?

open market operations

The Federal Reserve Banks are a central bank because they:

provide many services to banks

Study the Bonus PowerPoint Lecture, "The Fed's Countercyclical Operations" found on Canvas. Name the three tools of monetary policy that the Federal Reserve System can do to combat inflation. Make sure you say increase or decrease/buy or sell.

raise reserve requirement, raise the discount rate, sell bonds

if the Fed wishes to decrease the money supply it can

raise the discount rate Explanation By raising the discount rate, the Fed makes it costlier for private banks to borrow funds directly from the Fed. This will make it more likely that private banks loan as much possible to maximize profits, since any reserve shortfall can be met inexpensively using the discount window.

Which of the following serves as the central banker for private banks in the United States?

the 12 regional Federal Reserve banks Explanation Each of the 12 Federal Reserve banks acts as a central banker for the private banks in its region.

Which of the following is responsible for holding bank reserves?

the 12 regional Federal Reserve banks Explanation Nearly all of the reserves from private banks are held in accounts at the regional Federal Reserve banks.

Suppose Alan receives a check for $300 from a bank in Dallas. He deposits the check in his account at his Baltimore bank. Which of the following is Alan's Baltimore bank likely to collect the $300 from?

the Baltimore bank's regional Federal Reserve bank Explanation The Federal Reserve Banks act as a clearinghouse for private banks.

The key decision maker for U.S. monetary policy is

the Board of Governors. Explanation The Board of Governors is the key decision maker for monetary policy.

which of the following lends reserves to private banks?

the Federal Reserve System Explanation The Federal Reserve is the bank for private banks.

Which of the following is responsible for providing currency and cash to banks?

the Federal Reserve system Explanation Banks hold very little cash in their vaults, they turn to the Fed to meet sporadic cash demands.

The Federal Reserve Banks also serve as

the central bank

Which of the following is often described as the most powerful person in the U.S. economy?

the chairman of the Federal Reserve Explanation The chairman is the head of the government agency that controls the nation's money supply.

True or false: Open market operations are the principal mechanism for directly altering the reserves of the banking system and, therefore, the money supply.

true

True or false: The volume of trading in the government bond market exceeds $1 trillion per day.

true

The use of money and credit controls to influence macroeconomic outcomes is ____________ policy.

monetary

The use of money and credit controls to influence macroeconomic outcomes is

monetary policy.

What are three possible sources of last-minute reserves?

-Interbank borrowing using the federal funds market -Borrowing reserves from the Fed through discounting -Selling government bonds (securities)

The Board of Governors has ___ members, and they are appointed for ___ year terms.

7; 14 Explanation The board consists of 7 members appointed by the president and serve for 14 years.

Who is the chair of the Federal Reserve Board as of February 2018?

Jerome Powell

There are three possible sources of last-minute reserves. Which of the following is not a source?

Increasing the amount of loans made to the public

When Federal Reserve banks purchase bonds from commercial banks, what happens to the lending ability of the commercial banks?

It increases.

The current chair of the Federal Reserve is:

Jerome Powell

Who establishes reserve requirements (the fraction of checking account balances that banks must maintain as currency reserves)?

The Fed

Who has the ultimate responsibility for the supply of money?

The Fed

Which of the following is NOT true about the members of the Federal Reserve Board of Governors?

They each serve as chairman of the Board of Governors on a rotating basis. Explanation The chairman is appointed for four years, but may be reappointed for successive terms.

True or false: The Federal Reserve can make available a particular quantity of money and can change that amount through its policy tools.

True

excess reserves are:

bank reserves in excess of required reserves Explanation Excess reserves are the difference between total reserves and the amount required by Fed rules.

Government ______ are certificates acknowledging a debt and the amount of interest to be paid each year until repayment (i.e., an IOU) that are issued by governments.

bonds

The supply of money is directly increased by the Federal Reserve banks' purchase of government __________

bonds

When Federal Reserve banks purchase government _____ from commercial banks, they increase the reserves in the banking system, which then increases the lending ability of the commercial banks.

bonds

The 12 regional Fed banks do all of the following except

lend money to individuals. Explanation The Fed banks act as a central bank for private banks, not for individuals.

The twelve regional Federal Reserve banks are responsible for

lending reserves to private banks Explanation The Federal Reserve banks may loan reserves to private banks. This practice is called discounting.

Study the Bonus PowerPoint Lecture, "The Fed's Countercyclical Operations" found on Canvas. Name the three tools of monetary policy that the Federal Reserve System can do to combat unemployment/recession. Make sure you say increase or decrease/buy or sell.

lower reserve requirement, lower discount rate, buy bonds

Lending money by banks is made possible through

lowering the reserve ratio which transforms required reserves into excess reserves

Members of the Federal Reserve Board of Governors are appointed for one fourteen-year term so that they

make their decisions based on economic, rather than political, considerations. Explanation They are not beholden to any elected official and will hold office longer than any president.

to decrease the money supply, the Fed can

raise the reserve requirement, raise the discount rate, or sell bonds Explanation When the Fed raises the reserve requirement, raises the discount rate, or sell bonds there is a constraint of funds available to banks to loan. This causes a decrease in the money supply, which generates a decrease in aggregate demand.

which of the following is NOT a possible source of last-minute reserves for a private bank?

raising the discount rate Explanation Raising the discount rate is not a way banks can obtain funds to cover a temporary deficit in reserves because private banks do not control the discount rate.

The minimum amount of deposits that a bank is required by law to hold and not lend out is called its

required reserves

The Fed can directly manipulate the Blank______ in order to influence the ability of banks to lend.

reserve ratio

Because banks continually seek to keep excess reserves at a minimum, they run the risk of falling below

reserve requirements

The Federal Reserve Bank sets ______, which are the fractions of deposit account balances that banks must maintain as currency reserves.

reserve requirements

The funds being lent and borrowed overnight are called "federal funds" because they are reserves that are required by the Federal Reserve to meet what?

reserve requirements

The minimum amount of deposits that a bank is required by law to hold and not lend out is called its required

reserves

The chairman of the Federal Reserve Board of Governors

serves a four-year term and can be reappointed. Explanation The chairman is appointed for four years, and may be reappointed for successive terms.

The Federal Reserve Board of Governors has

seven members appointed by the President of the United States. Explanation The seven members of the board are appointed by the president and confirmed by the U.S. Senate.

Monetary policy involves the use of money and credit controls to

shift the aggregate demand curve. Explanation Monetary policy uses changes to the money supply to indirectly influence the aggregate demand for an economy.

ceteris paribus, if the Fed reduces the discount rate, then

the incentive to borrow funds increases Explanation By lowering the discount rate, the Fed makes it less costly for private banks to borrow funds directly from the Fed. This will make it more likely that private banks loan as much possible to maximize profits, since any reserve shortfall can be met inexpensively using the discount window.

ceteris paribus, if the Fed raises the discount rate, then

the incentive to borrow reserves decreases Explanation At high discount rates, borrowing from the Fed is expensive and so private banks are less likely to do it.

Which of the following is NOT a basic monetary policy tool used by the Fed?

the income tax rate Explanation The income tax rate is not regulated by the Fed; it is instead controlled by Congress.

ceteris paribus, if the Fed raises the reserve requirement, then

the lending capacity of the banking system decreases Explanation Banks must hold more funds used for loans in reserve and there is a greater leakage as subsequent deposits will yield smaller excess reserves for banks receiving them.

ceteris paribus, if the Fed reduces the reserve requirement, then

the lending capacity of the banking system increases Explanation Banks now have more money to loan since they are required to hold less in reserve.

The Fed uses its power to alter

the money supply