Chapters 15 and 16 Money and Banking

at a growth rate of 6 percent an economy will double in size in

12 years

the federal reserve was created in

1913

which one of the following is responsible for invoking the Fed's emergency powers?

Board of Governors

The objectives set for the Fed by congress are

By design, quite vague, allowing the Fed to really set its own goals

In the U.S., the authority to issue currency is held by the

Federal Reserve

Monetary policy in the United States is under the control of the

Federal Reserve

The central bank in the US is this

Federal Reserve

Considering state chartered banks,

Most elect not to join the system

member banks of the federal reserve system include

Nationally chartered banks and state chartered banks that decide to join

Prior to 1980

Nonmember banks did not have to hold non-interest-bearing reserve deposits at the Fed

the relationship between stability and economic growth is best summarized by which of the following statements?

Stability results in higher output growth rates

a typical FOMC meeting would be best described as

a fairly formal session with not much give and take

the federal reserve funds rate is stated as

a nominal interest rate

most economists agree that the target rate of inflation for central banks should be

above zero for fears of deflation

Beginning in July of 2018, President Donald Trump openly and frequently criticized the Federal Reserve and its Chairman Jay Powell. Blatantly undermining the independence of the Fed in this way likely

add a risk premium, driving down prices of U.S. assets

interest rate volatility is a problem because it

adds to uncertainty, thereby diminishing an investment

Currently the requirement of holding a non-interest-bearing reserve account at the Fed must be met by:

all banks, member of not

Changes in the federal funds rate influence the economy's growth rate through all of the following except by

altering the real interest rate when inflation is changing quickly

time consistency is critical for economic policy to be credible because

an effective policy is a strategy for the future, so it must be costly for policymakers to renege

each of the reserve banks has a president who is

appointed by the bank's board of directors but approved by the board of governors

The actions of central banks around the world

are vital to the day to day operation of any modern economy

the stability of the financial system is enhanced by the ability of central banks to

be a lender of last resort

the interest rate decisions made by the Federal Open Market Committee

cannot be overridden by anyone outside of the Federal Reserve

on evaluable lesson investors should learn from the stock market behavior during the 1990s and early 2000s is that the fed

cannot prevent a stock market decline

in the united states, monetary policy is formed by

committee

to be independent, a central bank must have

control of its own budget

one function of modern central banks is to

control the availability of money and credit

prior to the creation of the Federal Reserve System in the United States, how did financial panics typically begin?

crop failure or a bumper crop that drove the market price down

the primary purpose of meetings of the FOMC is to

decide on how to influence financial conditions

exchange rate stability is likely to be more important goal for the central banks of

emerging market economies that the central bank of the United States

Which one of the following would give the most importance to the goal of exchange rate stability?

emerging market economies where exports and imports are central to the structure of the economy

The rationale for the existence of central banks is mainly that

financial systems are prone to periods of extreme volatility

the problem for a central bank setting a zero inflation policy would be that

firms would have to cut the nominal wage to reduce the real wage

Each president of a reserve bank serves for a

five year term

The specific goals of central banks include each of the following except which one?

high levels of exports

the FOMC controls the real interest rate

if inflation doesn't change quickly

in the united states, one problem with central bank independence is that

in a representative democracy, monetary policymakers must be held accountable to the public

as the inflation rate

increases, inflation becomes less stable

there is a strong consensus among economists that monetary policy is more effective when it is formulated

independently of political pressure

the main problem from inflation as seen by most economists is that

inflation creates risk

the policy directive that is produced from the FOMC meeting

instructs the staff of the New York Fed on how to manage the Fed's balance sheet

the correlation between high rates of inflation and economic growth is

inverse; high inflation usually means low economic growth

one monopoly that modern central banks have is in

issuing currency

in terms of economic growth, the central bank would like to

keep the economy close to its potential or sustainable rate of growth

During the financial crisis of 2007-2009, the US federal reserve used its powers in all but which one of the ways?

lowering bank reserve requirements

one reason for having a monetary policy framework is that it

makes clear what specific goals the central bankers are pursuing

if prices are not stable,

money becomes less useful as a store of value

how many members belong to the board of directors for each of the reserve banks of the fed?

nine

considering the federal reserve districts, which one of the following is true?

no district coincides with a single state

higher than expected inflation will increase the

nominal amounts people need to save for retirement.

the lines drawn to establish federal reserve districts were based

on economic and political forces are well as population distribution in 1914

the federal reserve's policy regarding announcing its policy decisions has

only recently gone to immediate announcement; until 1994 these policy decisions were secret

which of the following statements is not true?

periods of growth below the potential level are periods of low unemployment

to say monetary policy is transparent implies that

policy makers offer plausible explanations for their decisions along with supporting data

the primary objective of most central banks in industrialized economies is

price stability

in its role as the bankers' bank, a central bank performs each of the following except which one?

providing deposit insurance

a primary goal of central banks is to

reduce systematic risk

Most of the fed's income is

returned to the US treasury

central banks are in a position to control risk in the economy because they control

short term interest rates

One reason it took so long to have a central bank in the United States is that

states feared centralization of power

the efficient allocation of resources requires

that prices reflect the relative value of goods and services

the real power in the FOMC lies with

the Chairman of the Board of Governors

the three branches of the federal reserve system include each of the following, except which one?

the Federal Deposit Insurance Corporation

The ability to create money means the central bank can control

the availability of money and credit in a country's economy

the reserve banks of the federal reserve system are owned by

the commercial banks in their districts

the federal reserve system is composed of

three branches with overlapping responsibities

the number of regional federal reserve banks is

twelve

the federal reserve bank of new york is unique from other reserve banks because it is

where the federal reserve system's portfolio is managed

a monetary policy framework is used to clarify all of the following except which one?

why zero inflation is not desirable