Chapter 4

T/F: During the Financial Crisis, coordinated effort by the central banks of 11 major countries accounted for the bulk of the economic rescue programs.

True

The President designates two board members to be the chairman and vice chairman for _______-year terms. a. ten b. eight c. four d. two

c. four

Of the nine members of the board of directors of each Federal Reserve Bank, _______ are elected by member banks in the district, and ______ are appointed by the Board of Governors in Washington. a. three; six b. four; five c. six; three d. five; four

c. six; three

Each Federal Reserve Bank has supervisory and regulatory authority over the activities of ___________ and ___________ located in their districts. a. commercial banks; insurance companies b. bank holding companies; finance companies c. state-chartered member banks; bank holding companies d. state-chartered member banks; credit unions

c. state-chartered member banks; bank holding companies

Since 2003, the Federal Reserve discount window loans to healthy banks are priced at ______ above the federal funds rate, while loans to troubled banks are priced at _______ above the federal funds rate. a. 1.5 percent; 2 percent b. 1 percent; 1 percent c. 1 percent; 2 percent d. 1 percent; 1.5 percent

d. 1 percent; 1.5 percent

When the Federal Reserve implements monetary policy by targeting the money supply (currency and bank reserves), movement of the demand curve for money around a fixed supply curve causes interest rates to a. decrease. b. remain constant. c. increase. d. be volatile.

d. be volatile.

Of the three monetary policy tools the Federal Reserve has at their disposal, only ________ has the effect of directly changing interest rates in the economy. a. open market operations b. changing the reserve requirement c. changing the T-bill rate d. changing the discount rate

d. changing the discount rate

Federal Reserve Banks are responsible for the collection and replacement of _________ from circulation. a. bonds past their maturity date b. government securities c. expired commercial paper d. currency

d. currency

The two largest liabilities on the Federal Reserve balance sheet are ________ and ________. a. currency in circulation; repurchase agreements b. vault cash; repurchase agreements c. repurchase agreements; reserves d. currency in circulation; reserves

d. currency in circulation; reserves

Lowering domestic interest rates can cause the dollar's foreign exchange rate to ________, resulting in a(n) ________ in U.S. exports. a. increase; decrease b. decrease; decrease c. increase; increase d. decrease; increase

d. decrease; increase

The Federal Reserve Bank uses its tools to influence either the demand for or supply of _________ at depository institutions. a. savings accounts b. bank loans c. required reserves d. excess reserves

d. excess reserves

Banks that have excess reserves on deposit at the Fed have an incentive to lend those to other banks to earn a higher rate than the Fed will pay. The rate at which this interbank lending occurs is called the a. discount rate. b. T-bill rate. c. coupon rate. d. federal funds rate.

d. federal funds rate.

When the Federal Reserve wants to decrease the supply of bank deposits in the system and hence the money supply, they _______ the level of required reserves. a. decrease b. keep constant c. change d. increase

d. increase

The Federal Reserve System is a(n) a. agency of the US Treasury. b. primarily a lender to foreign banks and governments. c. privately owned and managed megabank. d. independent central bank.

d. independent central bank.

Changes in the excess reserves held by depository institutions directly influences the _______ and the _______. a. money supply; level of imports b. level of required reserves; level of exports c. U.S. dollar exchange rate; number of bank branches d. money supply; interest rates

d. money supply; interest rates

The repeated issuing of new loans and creation of new deposits triggered by a change in the reserve requirement results in a total change in bank deposits that is many times different than the original change in reserves. This is called the a. bernoulli effect. b. venturi effect. c. placebo effect. d. multiplier effect.

d. multiplier effect.

When the Federal Reserve implements monetary policy by targeting the money supply (currency and bank reserves), it fixes the ________ while letting the ________ fluctuate. a. demand curve; supply curve b. interest rate; money supply c. interest rate; exchange rate d. supply curve; demand curve

d. supply curve; demand curve

By increasing banks' usage of the discount window as a source of funding, the Federal Reserve hopes to reduce _______ in the _______. a. borrowing; federal funds market b. volatility; T-bill market c. borrowing; long-term debt markets d. volatility; federal funds market

d. volatility; federal funds market

Select all that apply Which of the following are among the responsibilities of the Federal Reserve Banks? a. Issue U.S. Treasury securities b. Deliver government securities to investors c. Issue commercial paper d. Deliver corporate bonds e. Issue and redeem U.S. savings bonds f. Deliver municipal bonds for states

a, b, e

Select all that apply. The three tools that the Federal Reserve Bank can use to implement monetary policy are a. executing open market operations. b. adjusting the discount rate. c. direct manipulation of foreign exchange rates. d. printing more money. e. forward guidance. f. adjusting bank reserve requirements.

a, b, f

Select all that apply. The four major functions of the Federal Reserve Bank are to a. supervise and regulate depository institutions. b. manage the value of the US dollar. c. conduct monetary policy. d. provide payment and other financial services. e. manage the stability of the financial system. f. collect tariffs and taxes on foreign imports.

a, c, d, e

Select all that apply The twelve members of the Federal Open Market Committee consist of which of the following? a. The president of the New York Fed b. The Secretary of the Treasury c. The seven members of the Board of Governors d. The presidents of the twelve Fed district banks e. The Vice President f. Four of the presidents of the twelve Fed districts

a, c, f

The ________ system is the wire transfer system operated by the Federal Reserve Bank for the secure transfer of government securities between investors. a. Fedwire b. ACH c. Tripwire d. ReserveNet

a. Fedwire

Each of the twelve Federal Reserve Banks sets and changes the ________ that they charge on loans to financial institutions in their district. a. origination fees b. coupon rate c. discount rate d. federal funds rate

c. discount rate

The _________ creates federal laws intended to protect consumers in financial transactions, and the ___________ implement those laws. a. U.S. Congress; Federal Reserve Banks b. Federal Reserve Bank; Department of Justice c. U.S. Congress; Department of Justice d. U.S. Treasury; Federal Reserve Banks

a. U.S. Congress; Federal Reserve Banks

For the purposes of check clearing, all depository institutions have ________ with the Federal Reserve Bank in their district. a. accounts b. check cashing privileges c. reserves d. lines of credit

a. accounts

When the Federal Reserve implements monetary policy by targeting interest rates, movement of the demand curve for money requires that the Federal Reserve respond by __________ to keep interest rates at the target value. a. adjusting the money supply b. decreasing the money supply c. doing nothing d. increasing the money supply

a. adjusting the money supply

The Fed's check clearing system routes ________ to the depository institution on which they are written and ________ from one bank to another. a. checks; funds b. checks; credit c. deposit slips; checks d. withdrawal slips; funds

a. checks; funds

The Federal Reserve Banks distribute new ________ to meet the public need for _______. a. currency; cash b. savings bonds; retirement savings c. coins; collectibles d. government securities; investment

a. currency; cash

On the Fed balance sheet, reserves consist of ___________ and ___________. a. depository institution reserves; vault cash b. vault cash; coins c. US treasury securities; repurchase agreements d. vault cash; US treasury securities

a. depository institution reserves; vault cash

In order to achieve its monetary policy goals, the Federal Reserve can target ________ or ________ but not both at the same time. a. interest rates; the money supply b. exchange rates; interest rates c. inflation; exchange rates d. the money supply; inflation

a. interest rates; the money supply

The Fed funds rate is used in the United States to guide ________ policy. a. monetary b. foreign c. public d. tax

a. monetary

Each Federal Reserve Bank has its own _______-member board of directors. a. nine b. three c. twelve d. six

a. nine

The reserves which depository institutions are required by law to hold (up to 10 percent of transaction deposits) are called a. required reserves. b. mandated reserves. c. stipulated reserves. d. excess reserves.

a. required reserves.

Changing the discount rate provides a(n) ________ to the market and the economy that the Federal Reserve would like to see higher or lower rates in the economy. a. signal b. incentive c. obligation d. threat

a. signal

Select all that apply. When the Federal Reserve want to stimulate the economy, it can a. use open market operations to sell Treasury bills. b. lower the discount rate. c. use open market operations to buy Treasury bills. d. lower reserve requirements. e. increase reserve requirements. f. raise the discount rate.

b, c, d

The reserves which depository institutions hold at the Fed over and above required reserves are called a. nonworking reserves. b. unnecessary reserves. c. excess reserves. d. redundant reserves.

c. excess reserves.

Select all that apply. Four of the programs implemented by central banks to alleviate the effects of the Financial Crises were a. tight control of the level of imports using tariffs and quotas. b. the expansion of retail deposit insurance. c. capital injections into the banking system. d. asset purchases or guarantees. e. debt guarantees. f. the lowering of exchange rates to stimulate trade.

b, c, d, e

Select all that apply The supervisory and regulatory activities of each Federal Reserve Bank in its district includes the authority to do which of the following? a. Monitor the activities of insurance companies b. Performs examinations and inspections c. Issue warnings d. Charter new banks e. Excuse depository institutions from reserve requirements f. Approve expanded activities

b, c, f

As of 2018, Greece owed the EU and IMF roughly _____. a. $200 billion b. $330 billion c. $530 billion d. $100 billion

b. $330 billion

The ________ allowed banks to destroy checks after taking a digital image which can be processed electronically. a. ATM machine b. Check 21 Act c. smartphone app d. U.S. Treasury

b. Check 21 Act

The Federal Reserve Bank, the Bank of England, the Reserve Bank of India, and the People's Bank of China are all examples of a. financial holding companies. b. central banks. c. commercial banks. d. megabanks.

b. central banks.

One of the problems with using the discount rate as a monetary policy tool is that it is difficult to predict ________ when the discount rate changes. a. changes in long-term interest rates b. changes in discount window borrowing c. changes in the U.S. dollar exchange rate d. changes in inflation

b. changes in discount window borrowing

The _________ at the Federal Reserve Banks engage in a variety of activities to help the public understand and address issues that affect low and moderate income people and regions. a. board of examiners b. community affairs offices c. board of directors d. discount window

b. community affairs offices

When the Federal Reserve sells U.S. Treasury securities from the over-the-counter market, it _______ the supply of excess reserves and places _______ pressure on the federal funds rate. a. increases; upward b. decreases; upward c. decreases; downward d. increases; downward

b. decreases; upward

A central bank is said to be "independent" if it is a. not part of the government at all. b. free from pressure from politicians. c. privately run rather than government run. d. not under the supervision of the executive branch.

b. free from pressure from politicians.

Once the FOMC has determined a target monetary aggregate or interest rate level, it communicates a(n) ______ to the Federal Reserve Bank of New York. a. memo b. policy directive c. phone call d. memo of understanding

b. policy directive

One important way in which the Federal Reserve Banks provide assistance in the conduct of monetary policy is by a. buying and selling US treasury securities from the FOMC. b. providing five Federal Reserve Bank presidents to serve on the FOMC board members. c. buying or selling US treasury securities from local banks in their individual districts. d. setting the federal funds rate for their individual districts.

b. providing five Federal Reserve Bank presidents to serve on the FOMC board members.

The chair of the Federal Open Market Committee is a. the president of the New York Fed. b. the chair of the Board of Governors. c. the Secretary of the Treasury. d. rotated among the twelve Fed district presidents.

b. the chair of the Board of Governors.

The Federal Reserve System is divided into ________ districts, each of which has one main Federal Reserve Bank and possibly branches in other cities. a. ten b. twelve c. six d. eight

b. twelve

Throughout the spring of 2010, _____ struggled with a severe debt crisis and the ECB, Germany, and France formulated an aid plan to bail out the country. a. Scotland b. Iran c. Greece d. India

c. Greece

The most important of the Federal Reserve Banks is generally considered to be a. Chicago. b. Atlanta. c. New York. d. San Francisco.

c. New York

Members of the Federal Reserve Board are appointed by the President but must be confirmed by the a. House of Representatives. b. Secretary of the Treasury. c. Senate. d. other board members.

c. Senate.

The "money base" consists of ________ plus ________. a. cash; coins b. vault cash; reserves c. currency in circulation; reserves d. reserves; repurchase agreements

c. currency in circulation; reserves