Chapter 4 (Connect)

The primary responsibilities of the Federal Reserve Board are the

- formulation and conduct of monetary policy - supervision and regulation of banks

When the Federal Reserve wants to slow down the economy, it can

- increase reserve requirements. - use open market operations to sell Treasury bills. - raise the discount rate.

The Fed's Quantitative Easing programs implemented between 2009 and 2014 involved the purchase of

- long-term Treasury securities. - Fannie Mae and Freddie Mac mortgage-backed securities

The main responsibilities of the FOMC are to formulate policies to

- promote full employment - promote economic growth - promote price stability - maintain sustainable pattern of international trade

When the Fed _______ the discount rate, they are sending a signal to the market that they would like to see ________ interest rates and ________ borrowing.

- raises; higher; less - lowers; lower; more

The two approaches available to the Federal Reserve for implementing monetary policy are to

- set a target for the federal funds rate and adjust the level of excess reserves to meet that target. - target the quantity of reserves in the market based on the FOMC's objectives for growth in the monetary base.

The four major functions of the Federal Reserve Bank are to

- supervise and regulate depository institutions. - provide payment and other financial services. - manage the stability of the financial system. - conduct monetary policy.

Four of the programs implemented by central banks to alleviate the effects of the Financial Crises were

- the expansion of retail deposit insurance. - debt guarantees. - capital injections into the banking system. - asset purchases or guarantees.

The Taylor Rule states that short-term interest rates should be determined by three conditions, which are

- where actual inflation is relative to the Fed target. - the extent to which the economy is above or below its full employment level. - what short-term interest rates should be to achieve full employment.

The supervisory and regulatory activities of each Federal Reserve Bank in its district includes the authority to do which of the following?

1. Conduct of examinations and inspections of member banks, bank holding companies, and foreign bank offices (by teams of bank examiners) 2. authority to issue warnings 3. the authority to approve expanded activities (such as mergers and acquisitions) for various banks/bank holding co.

The Federal Reserve System is divided into ________ districts, each of which has one main Federal Reserve Bank and possibly branches in other cities.

12

As of 2018, Greece owed the EU and IMF roughly _____.

330 billion

Approximately ______ percent of all US banks are currently members of the Federal Reserve System.

38

The President designates two board members to be the chairman and vice chairman for _______-year terms.

4

In 1993, Federal Reserve chairman, _________, announced that the Fed would no longer target the money supply but would focus on the ________.

Alan Greenspan; federal funds rate

The ________ allowed banks to destroy checks after taking a digital image which can be processed electronically.

Check 21 Act

True or false: Reserve requirements are an easy and common way for the Federal Reserve to control the money supply.

False. Can result in unpredictable changes to the money supply

The ________ system is the wire transfer system operated by the Federal Reserve Bank for the secure transfer of government securities between investors.

Fedwire

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.

Greece

Depository institutions currently hold large balances of excess reserves at the Fed. As a result, the Fed intends to move the federal funds rate primarily by setting the ________ to the top of the desired target range for the federal funds rate.

IOER

The most important of the Federal Reserve Banks is generally considered to be

New York

Members of the Federal Reserve Board are appointed by the President but must be confirmed by the

Senate

A guiding principle that is used by the Federal Reserve to set short-term interest rate targets is called the

Taylor Rule.

The _________ creates federal laws intended to protect consumers in financial transactions, and the ___________ implement those laws.

U.S. Congress; Federal Reserve Banks

The Federal Reserve Trading Desk at the New York Fed implements the FOMC policy directive by buying or selling ________ on the over the counter market.

U.S. Treasury securities

The Federal Reserves usually implements its open market operations by buying and selling

US Treasury Bills

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.

adjusting the money supply

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

be volatile

The government entity in most countries that is responsible for the planning and implementation of monetary policy is the

central bank

The Federal Reserve Bank, the Bank of England, the Reserve Bank of India, and the People's Bank of China are all examples of

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.

changes in discount window borrowing

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.

changing the discount rate

The Fed's check clearing system routes ________ to the depository institution on which they are written and ________ from one bank to another.

checks; funds

The Federal Reserve serves as the __________ for the U.S. Treasury, holding the deposit accounts and collateral for government agencies.

commercial bank

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.

community affairs offices

Historical data has shown that major U.S. interest rates are ______ the discount rate.

correlated with

Federal Reserve Banks are responsible for the collection and replacement of _________ from circulation.

currency (paper and coin)

The two largest liabilities on the Federal Reserve balance sheet are ________ and ________.

currency in circulation; reserves

The Federal Reserve Banks distribute new ________ to meet the public need for _______.

currency; cash

When the Federal Reserve wants to increase the supply of bank deposits in the system and hence the money supply, they _______ the level of required reserves.

decrease

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

decrease; increase

The Fed's Quantitative Easing programs increased the supply of funds to the long-term securities market and thereby _________ long-term interest rates.

decreased

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.

decreases; upward

On the Fed balance sheet, reserves consist of ___________ and ___________.

depository institution reserves; vault cash

Each of the twelve Federal Reserve Banks sets and changes the ________ that they charge on loans to financial institutions in their district.

discount rate

Each Federal Reserve Bank's ________ makes cash loans to financial institutions by discounting eligible short-term securities at the official ________.

discount window; discount rate

The Federal Reserve Bank uses its tools to influence either the demand for or supply of _________ at depository institutions.

excess reserves

The reserves which depository institutions hold at the Fed over and above required reserves are called

excess reserves.

A central bank is said to be "independent" if it is

free from pressure from politicians

Raising domestic interest rates can cause the dollar's foreign exchange rate to ________, resulting in a(n) ________ in U.S. exports.

increase; decrease

Selling Treasury securities in the open market, increasing required reserves and increasing the discount rate all have the effect of ________ interest rates in the economy.

increasing

The Federal Reserve System is a(n)

independent central bank

In order to achieve its monetary policy goals, the Federal Reserve can target ________ or ________ but not both at the same time.

interest rates; the money supply

The Fed funds rate is used in the United States to guide ________ policy.

monetary

The Federal Reserve Board, acting through the Federal Open Market Committee, sets _______ and _______ targets.

money supply; interest rate

Changes in the excess reserves held by depository institutions directly influences the _______ and the _______.

money supply; interest rates

In January 2003, the Federal Reserve changed its discount window policy to make discount window loans

more expensive but easier to obtain.

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

multiplier effect

The purchase and sale of U.S. government securities by the trading desk at the New York Fed under the direction of the FOMC is called

open market operations

One important way in which the Federal Reserve Banks provide assistance in the conduct of monetary policy is by

providing five of the twelve FOMC board members.

The reserves which depository institutions are required by law to hold (up to 10 percent of transaction deposits) are called

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.

signal

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.

six; three

Each Federal Reserve Bank has supervisory and regulatory authority over the activities of ___________ and ___________ located in their districts.

state-chartered member banks; bank holding companies

The Federal Reserve is cautious in its use of the discount rate for monetary policy because its effects on financial markets can be ________ and _______.

strong; unpredictable

When the Federal Reserve implements monetary policy by targeting the money supply (currency and bank reserves), it fixes the ________ while letting the ________ fluctuate.

supply curve; demand curve

Since 1993, the Federal Reserve has implemented monetary policy mainly by

targeting the federal funds rate.

Federal Reserve Banks operate under the general supervision of

the Board of Governors of the Federal Reserve.

True or false: During the Financial Crisis, coordinated effort by the central banks of 11 major countries accounted for the bulk of the economic rescue programs.

true

True or false: The primary advantage to membership in the Federal Reserve System is access to the federal funds wire transfer network for interbank borrowing and lending of reserves.

true

Because the effect of changes in the reserve requirement on bank deposits is _________, the Federal Reserve _________ uses this mechanism for monetary policy.

unpredictable; rarely

By increasing banks' usage of the discount window as a source of funding, the Federal Reserve hopes to reduce _______ in the _______.

volatility; federal funds market