Ch. 14

The government uses ______________ to regulate the amount of money banks lend.

monetary policy
fiscal policy
banking policy
tax cuts

monetary policy

Which of the following services is performed by the regional Federal Reserve banks?

Holding deposits for individuals.
Providing loans to individuals.
Providing currency to private banks.
Check cashing for large nonbank corporations.

Providing currency to private banks

The use of money and credit controls to achieve macroeconomic goals is

Fiscal policy.
Monetary policy.
Supply-side policy.
Eclectic policy.

monetary policy

The purchase and sale of government bonds by the Fed for the purpose of altering bank reserves is known as

Fiscal policy.
Federal funds operations.
Open market operations.
Zero coupon bonding.

open market operations

The Federal Open Market Committee includes

All 7 governors and 5 of the regional Reserve bank presidents.
5 of the governors and all of the regional Reserve bank presidents.
12 of the regional Reserve bank presidents plus the chairman of the Fed.
All 12 of the governors and all 7 of the regional Reserve bank presidents.

All 7 governors and 5 of the regional Reserve bank presidents

Monetary policy is set by the

Federal Open Market Committee.
Regional Federal Reserve banks.
Federal Advisory Council.
Board of Governors.

Board of governors

The Fed is most likely to pursue

Frequent adjustment of the reserve requirement.
Use of open market operations as the primary mechanism to change reserves.
Numerous increases in the discount rate to tighten the money supply quickly.
Frequent changes in marginal tax rates.

Use of open market operations as the primary mechanism to change reserves

The rate of interest charged by Federal Reserve banks for lending reserves to member banks is the

Federal funds rate.
Prime rate.
Discount rate.
Commercial paper rate.

Discount rate

The federal funds rate is the interest rate charged when

One bank lends reserves to another bank.
The Fed lends to banks.
The Fed lends to individuals.
Individual banks lend to the Fed.

One bank lends reserves to another bank

Which of the following represents the lending capacity of an individual (nonmonopoly) bank?

Required reserve ratio ×total deposits.
Total reserves – required reserves.
(Total reserves – required reserves) ×multiplier.
1 ÷ (required reserve ratio).

Total reserves – required reserves

All of the following are tools available to the Fed for controlling the money supply except

The reserve requirement.
The discount rate.
Open market operations.
Taxes.

Taxes

If the Fed wishes to increase the money supply, it could

Lower the discount rate.
Raise the minimum reserve ratio.
Sell securities on the open market.
Issue more bonds.

Lower the discount rate

When the Fed buys bonds from the public, it

Decreases the flow of reserves to the banking system.
Increases the flow of reserves to the banking system.
Decreases the money supply.
Decreases the discount rate.

Decreases the flow of reserves to the banking system

If excess reserves are too large, a bank is likely to

Buy government securities.
Borrow in the federal funds market.
Borrow reserves from the discount window.
All of the choices are correct.

Buy government securities

The Fed can decrease the federal funds rate by

Selling government bonds.
Buying government bonds, which causes market interest rates to fall.
Simply announcing a lower rate because the Fed has direct control of this interest rate.
Changing the money multiplier.

Buying government bonds, which causes market interest rates to fall

Which of the following is the market where reserves can be borrowed by one bank from another bank for very short periods of time?

Money market.
Commercial paper market.
Federal funds market.
Foreign exchange market.

Federal funds market

All of the following would be true for the banking system if there was no government regulation except

The money supply would be determined by individual banks.
Depositors would bear all the risks of bank failures.
The money supply would be subject to abrupt changes.
The banking system would be regulated by consumers.

The banking system would be regulated by consumers

When the Fed wishes to increase the reserves of the member banks, it

Buys securities.
Raises the reserve requirement.
Raises the discount rate.
Sells securities.

Buys securities

The primary method for controlling the money supply in the United States is to limit the

Amount of currency that is printed.
Amount of money that is spent by changing tax policy.
Amount of money that is spent by changing income transfers.
Volume of loans the banking system can make.

Volume of loans that the banking system can make

The Federal Reserve System was created by

The FDIC in 1929.
The Federal Reserve Act in 1913.
The U.S. Treasury in 1914.
The Federal Banking Authority in 1904.

The Federal Reserve Act in 1913

The M2 money supply is defined as

Currency held by the public plus transactions accounts.
M1 plus savings accounts.
M1 plus balances in most savings accounts and money market mutual funds.
Most balances held in savings accounts and money market mutual funds.

M1 plus balances in most savings accounts and money market mutual funds

Suppose Brian receives a check for $100 from a bank in Atlanta. He deposits the check in his account at a Dallas bank. The Dallas bank will most likely collect the $100 directly from the

FOMC.
Dallas regional Federal Reserve Bank.
Federal Reserve Bank in Washington, D.C.
Board of Governors.

Dallas regional Federal Reserve Bank

A growing economy needs a

Steadily increasing supply of money to finance market exchanges.
Continually decreasing supply of money to finance the government’s expenditures.
Constant supply of money to keep inflation under control.
Decreasing supply of money to keep interest rates low.

Steadily increasing supply of money to finance market exchanges

Monetary policy involves the use of money and credit controls to

Shift the aggregate demand curve.
Shift the aggregate supply curve.
Move the economy along the aggregate demand curve.
Move the economy along the aggregate supply curve.

Shift the aggregate demand curve

Regional Fed banks are responsible for all of the following except

Holding bank reserves.
Providing currency for private banks.
Providing loans to private banks.
Cashing checks for large nonfinancial corporations.

Cashing checks for large nonfinancial corporations

_____________ can be altered to change the lending capacity of the banking system.

Points charged on a typical first mortgage
Gold reserves
The reserve requirement
The dollar exchange rate

The reserve requirement

Discounting refers to the Fed’s practice of

Selling securities at the federal funds rate.
Purchasing securities at the lowest available federal funds rate.
Lending reserves directly to private banks.
Lending at the prime rate.

Lending reserves directly to private banks

In order to increase the money supply, the Fed can

Raise the reserve requirement, increase the discount rate, or sell bonds.
Raise the reserve requirement, increase the discount rate, or buy bonds.
Lower the reserve requirement, increase the discount rate, or buy bonds.
Lower the reserve requirement, decrease the discount rate, or buy bonds.

Lower the reserve requirement, decrease the discount rate, or buy bonds

The current chairman of the Federal Reserve is

Alan Greenspan.
Hillary Clinton.
Janet Yellen.
Barak Obama.

Janet Yellen

Members of the Board of Governors are

Elected by the people and confirmed by the president.
Appointed by the president and confirmed by the Senate.
Selected by each new president at the same time the cabinet is chosen.
Appointed by the Senate and confirmed by the House of Representatives.

Appointed by the president and confirmed by the Senate