Question 1

Suppose that the Fed undertakes an open market sale,selling $3 million worth of securities to a bank.If the required reserve ratio is 11%,checkable deposits (or the money supply) ,would _______________ by ________________ million,assuming that there are no cash leakages and that banks hold zero excess reserves.

Accepted Answer

A)  rise;$27
B)  decline;$33
C)  decline;$27
D)  rise;$33

Question 2

Members of the Board of Governors of the Federal Reserve are appointed by the President and approved by the Senate to serve a 14-year term.

Accepted Answer

A) True 
 B)False

Question 3

If the Fed wants to increase the money supply through open market operations,it will

Accepted Answer

A)  purchase government securities.
B)  sell government securities.
C)  first purchase,then sell,government securities.
D)  lend more reserves to commercial banks.

Question 4

Which of the following is false?

Accepted Answer

A)  Under free banking,banks would not be subject to any special regulations beyond those which are required of other businesses.
B)  Under free banking,banks would be allowed to issue their own currency.
C)  The government would largely control the actions of banks under free banking.
D)  The market forces would raise or lower the money supply under free banking.

Question 5

The __________ rate is the interest rate one bank pays another bank for a loan.

Accepted Answer

A)  discount
B)  mortgage
C)  reserve requirement
D)  federal funds
E)  bank-borrowing

Question 6

If there are no excess reserves in the banking system and the Fed lowers the required reserve ratio,it follows that banks will now have __________,which they can use to extend loans and create new __________.

Accepted Answer

A)  positive excess reserves;checkable deposits
B)  negative excess reserves;currency
C)  positive excess reserves;currency
D)  more vault cash;checkable deposits
E)  none of the above

Question 7

Although the Fed can destroy money,it is impossible for the Fed to create money out of thin air.

Accepted Answer

A) True 
 B)False

Question 8

The Fed can change the federal funds rate by issuing an order,but it cannot change the discount rate this way.

Accepted Answer

A) True 
 B)False

Question 9

In controlling the nation's money supply,the Fed is obligated to seek the advice of

Accepted Answer

A)  the Congress.
B)  the President of the United States.
C)  the Treasury.
D)  a and b
E)  none of the above

Question 10

If the Fed lowers the discount rate (relative to the federal funds rate) ,banks will (likely) borrow __________ from the Fed,which will __________ reserves in the banking system,and eventually __________ the money supply.

Accepted Answer

A)  less;decrease;lower
B)  more;increase;raise
C)  the same amount;not change;lower
D)  more;decrease;raise
E)  none of the above

Question 11

When one commercial bank borrows from another commercial bank,it pays the __________ rate.

Accepted Answer

A)  discount
B)  bank interest
C)  federal funds
D)  prime
E)  none of the above

Question 12

A Federal Reserve Bank is located in which of the following cities?

Accepted Answer

A)  Detroit
B)  Baltimore
C)  Minneapolis
D)  Seattle
E)  Cincinnati

Question 13

The Board of Governors of the Federal Reserve

Accepted Answer

A)  is made up of seven members.
B)  is a group of advisers reporting to the President.
C)  is located in New York City.
D)  members are appointed to four-year terms by the President and confirmed by the Senate.
E)  all of the above

Question 14

The word that best describes the relationship between the required reserve ratio and the money supply is

Accepted Answer

A)  direct.
B)  constant.
C)  inverse.
D)  roundabout.

Question 15

When the Fed increases the required reserve ratio,a bank's

Accepted Answer

A)  excess reserves are unaffected.
B)  excess reserves are increased.
C)  excess reserves are decreased.
D)  required reserves are decreased.
E)  b and d

Question 16

When the Fed sells government securities to a bank,the

Accepted Answer

A)  bank's reserves increase.
B)  bank's reserves decrease.
C)  bank's reserves do not change.
D)  securities are an asset for the bank.
E)  b and d

Question 17

An open market sale by the Fed will

Accepted Answer

A)  increase bank reserves.
B)  increase currency held by the public or vault cash.
C)  increase the money supply.
D)  reduce the money supply.

Question 18

If the Fed were to increase the discount rate so that it was much higher than the federal funds rate,eventually

Accepted Answer

A)  reserves would decrease and the money supply would decrease.
B)  reserves would increase and the money supply would increase.
C)  reserves would decrease and the money supply would increase.
D)  reserves would increase and the money supply would decrease.
E)  there is no impact on reserves or the money supply.

Question 19

The three members of the commission that originally drew up the boundaries of the Federal Reserve Districts and the locations of the district banks were the

Accepted Answer

A)  Comptroller of the Currency,the Secretary of the Treasury,and the Secretary of Agriculture.
B)  Secretary of State,the Secretary of the Treasury,and the Speaker of the House of Representatives.
C)  Secretary of State,the Secretary of Commerce,and the Vice President.
D)  Secretary of the Treasury,the Secretary of Commerce,and the Vice President.

Question 20

In its current execution of monetary policy,the Fed does not usually have a specific _____________ target,but rather it tries to target a specific ________________.

Accepted Answer

A)  money supply;federal funds rate
B)  federal funds rate;money supply
C)  money supply;discount rate
D)  required reserves ratio;discount rate

Exam 13: The Federal Reserve System

Although the Fed can destroy money,it is impossible for the Fed to create money out of thin air.

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The Board of Governors of the Federal Reserve

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If the Fed were to increase the discount rate so that it was much higher than the federal funds rate,eventually

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The Fed can change the federal funds rate by issuing an order,but it cannot change the discount rate this way.

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The word that best describes the relationship between the required reserve ratio and the money supply is

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The __________ rate is the interest rate one bank pays another bank for a loan.

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When one commercial bank borrows from another commercial bank,it pays the __________ rate.

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In its current execution of monetary policy,the Fed does not usually have a specific _____________ target,but rather it tries to target a specific ________________.

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Members of the Board of Governors of the Federal Reserve are appointed by the President and approved by the Senate to serve a 14-year term.

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Which of the following is false?

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A Federal Reserve Bank is located in which of the following cities?

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An open market sale by the Fed will

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When the Fed increases the required reserve ratio,a bank's

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When the Fed sells government securities to a bank,the

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If the Fed lowers the discount rate (relative to the federal funds rate) ,banks will (likely) borrow __________ from the Fed,which will __________ reserves in the banking system,and eventually __________ the money supply.

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If the Fed wants to increase the money supply through open market operations,it will

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In controlling the nation's money supply,the Fed is obligated to seek the advice of

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If there are no excess reserves in the banking system and the Fed lowers the required reserve ratio,it follows that banks will now have __________,which they can use to extend loans and create new __________.

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The three members of the commission that originally drew up the boundaries of the Federal Reserve Districts and the locations of the district banks were the

Correct AnswerverifiedShow Answer

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In its current execution of monetary policy,the Fed does not usually have a specific _ target,but rather it tries to target a specific ____.

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If the Fed lowers the discount rate (relative to the federal funds rate) ,banks will (likely) borrow from the Fed,which will reserves in the banking system,and eventually __ the money supply.

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If there are no excess reserves in the banking system and the Fed lowers the required reserve ratio,it follows that banks will now have ,which they can use to extend loans and create new .

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