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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. |
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Which of the following serves as the central banker for private banks in the United States? The 12 Federal Reserve banks. The executive branch of government. The legislative branch of the government. The Federal Open Market Committee. |
✓ The 12 Federal Reserve banks. |
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Regional Fed banks Hold deposits for individuals. Clear checks between private banks. Participate in open market operations. Insure the deposits in private banks. |
✓ Clear checks between private banks. |
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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. |
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Monetary policy is set by the Federal Open Market Committee. Regional Federal Reserve banks. Federal Advisory Council. Board of Governors. |
✓ Board of Governors. |
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The Board of Governors consists of 7 members, appointed for 14-year terms. 26 members, appointed for 2-year terms. 14 members, appointed for 7-year terms. 50 members, appointed for 7-year terms. |
✓ 7 members, appointed for 14-year terms. |
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Which of the following provides evidence that the Federal Reserve System is politically insulated? The Fed governors are appointed by the president of the United States. The Fed governors are appointed for 14-year terms and cannot be reappointed. The Board of Governors is located in Washington, D.C. The Fed acts as a clearinghouse between commercial banks. |
✓ The Fed governors are appointed for 14-year terms and cannot be reappointed. |
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Members of the Federal Reserve Board of Governors are appointed for one 14-year term so that they Have time to learn how the Fed operates. Are more likely to make politically acceptable decisions. Make their decisions based on economic, rather than political, considerations. Have enough time to travel to all 12 regional banks. |
✓ Make their decisions based on economic, rather than political, considerations. |
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The Federal Open Market Committee meets Twice per year. Every four or five weeks. Every week. Every three months. |
✓ Every four or five weeks. |
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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. |
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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. |
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Which of the following represents the lending capacity of an entire banking system? Required reserve ratio ×total deposits. Total reserves – required reserves. (Total reserves – required reserves) ×money multiplier. 1 ÷ (required reserve ratio). |
✓ (Total reserves – required reserves) ×money multiplier. |
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Assume the reserve requirement is 10 percent, demand deposits are $200 million, and total reserves are $18 million. If the reserve requirement is increased to 14 percent, the banking system will have Excess reserves equal to $10 million. Excess reserves equal to $18 million. An increase in the money multiplier. A deficiency of reserves equal to $10 million. |
✓ A deficiency of reserves equal to $10 million. |
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Suppose the banks in the Federal Reserve System have $100 billion in transactions accounts, the required reserve ratio is 0.10, and there are no excess reserves in the system. If the required reserve ratio is changed to 0.15, the deficiency of reserves would be $15 billion. $20 billion. $5 billion. $10 billion. |
✓ $5 billion. |
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Suppose the banks in the Federal Reserve System have $200 billion in transactions accounts, the required reserve ratio is 0.15, and there are no excess reserves in the system. If the required reserve ratio is changed to 0.10, the amount of excess reserves would be Negative $10 billion. Negative $20 billion. Positive $10 billion. Positive $20 billion. |
✓ Positive $10 billion. |
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Suppose all of the banks in the Federal Reserve System have $100 billion in transactions accounts, the required reserve ratio is 0.25, and there are no excess reserves in the system. If the required reserve ratio is changed to 0.20, the total lending capacity of the system is increased by $25 billion. $20 billion. $10 billion. $750 million. |
✓ $25 billion. |
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Changing the reserve requirement is A powerful tool that can cause abrupt changes in the money supply. The most often-used tool on the part of the Fed. A tool that has little impact on the money supply. Effective in changing excess reserves but not the money supply. |
✓ A powerful tool that can cause abrupt changes in the money supply. |
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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. |
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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. |
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If banks do not have enough reserves to satisfy the reserve requirement, they can Buy securities. Pay off discount loans at the Federal Reserve bank. Lend additional reserves in the federal funds market. Sell securities. |
✓ Sell securities. |
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If a bank does not have enough reserves to satisfy the reserve requirement, it is likely to do any of the following except Borrow additional reserves in the federal funds market. Sell securities. Borrow from the discount window at the Federal Reserve Bank. Buy securities. |
✓ Buy securities. |
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When a bank borrows money from the Federal Reserve, This is a sign that the bank is insolvent. Demand deposits increase for the bank. Reserves increase for the bank. The ability to lend decreases for the bank. |
✓ Reserves increase for the bank. |
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Which of the following is the principal mechanism used by the Federal Reserve to directly alter the reserves of the banking system? Changes in the discount rate. Changes in the required reserve ratio. Open market operations. Foreign exchange operations. |
✓ Open market operations. |
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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. |
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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. |
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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. |
✓ Increases the flow of reserves to the banking system. |
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A bond is a Ownership share in a private company. Promise to repay borrowed funds. Certification that a bank has met the Fed’s reserve requirement. License to use the Fed’s discount window. |
✓ Promise to repay borrowed funds. |
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Janette buys a bond in the amount of $500 with a promised interest rate of 15 percent. If the market interest rate decreases to 5 percent, Janette can sell her bond for up to $500. $250. $1,500. $1,250. |
✓ $1,500. |
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Anil buys a bond in the amount of $2,000 with a promised interest rate of 17 percent. If the market interest rate increases to 27 percent, Anil can sell his bond for up to $1,259.26. $540.00. $7,407.00. $11,764.71. |
✓ $1,259.26. |
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If the annual interest rate printed on the face of a bond is 12 percent, the face value of the bond is $1,000, and the current market price of the bond is $1,200, what is the current yield on the bond? 10.0 percent. 12.0 percent. 8.5 percent. 5.0 percent. |
✓ 10.0 percent. |
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If the annual interest rate printed on the face of a bond is 7 percent, the face value of the bond is $1,000, and the current market price of the bond is $250, what is the current yield on the bond? 25 percent. 14 percent. 28 percent. 18 percent. |
✓ 28 percent. |
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If the annual interest rate printed on the face of a bond is 25 percent, the face value of the bond is $1,000, and the current market price of the bond is $700, what is the current yield on the bond? 25.5 percent. 20.5 percent. 35.7 percent. 25.0 percent. |
✓ 35.7 percent. |
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Open market operations involve the Fed Buying or selling government bonds. Buying or selling shares of stock. Borrowing money from a bank. Lending money to individuals. |
✓ Buying or selling government bonds. |
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If the Federal Reserve buys government bonds from the public, The money supply will contract. Bank reserves will not change. Banks will be able to make additional loans. Demand deposits will decrease. |
✓ Banks will be able to make additional loans. |
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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 |
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Suppose the Federal Reserve System has a required reserve ratio of 0.10 and there are no excess reserves in the system. If the Open Market Committee buys $50 million of securities from the commercial banking system, the total lending capacity for the system Decreases by $50 million. Decreases by $500 million. Increases by $50 million. Increases by $500 million. |
✓ Increases by $500 million. |
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If the Fed buys $150 billion of U.S. bonds in the open market and the reserve requirement is 5 percent, M1 will eventually Increase by $3,000 billion. Decrease by $3,000 billion. Increase by $300 billion. Decrease by $300 billion. |
✓ Increase by $3,000 billion. |
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If the Fed buys $25 billion of U.S. bonds in the open market and the reserve requirement is 20 percent, M1 will eventually Increase by $25 billion. Decrease by $25 billion. Increase by $125 billion. Decrease by $125 billion. |
✓ Increase by $125 billion. |
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If the Fed buys $32 billion of U.S. bonds in the open market and the reserve requirement is 10 percent, M1 will eventually Decrease by $32 billion. Increase by $32 billion. Decrease by $320 billion. Increase by $320 billion. |
✓ Increase by $320 billion. |
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If the Fed buys $20 billion of U.S. bonds in the open market and the reserve requirement is 5 percent, M1 will eventually Decrease by $100 billion. Decrease by $400 billion. Increase by $100 billion. Increase by $400 billion. |
✓ Increase by $400 billion. |
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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. |
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Suppose the Federal Reserve System has a required reserve ratio of 0.20. If the Open Market Committee sells $10 billion of securities to the commercial banking system, then before the money multiplier takes effect, initially excess reserves Decrease by $10 billion. Increase by $50 billion. Increase by $10 million. Decrease by $50 billion. |
Decrease by $10 billion. |
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Which of the following is not required to satisfy Fed minimum reserve requirements? Commercial banks. Most credit unions. Pawn shops. Savings and loans. |
✓ Pawn shops. |
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