ECON 1115 Lecture Notes - Lecture 29: Time Deposit, Fiat Money, Monetary Policy
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QUESTION 31
The Board of Governors of the Federal Reserve System is
| composed of seven members who are appointed by the President and approved by the Senate. | ||
| composed of 12 members of the Senate and the U.S. House of Representatives. | ||
| elected by the general public. | ||
| composed of representatives from the country's 12 largest commercial banks. |
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QUESTION 32
The Fed is said to be the "lender of last resort" in that
| it charges a higher interest rate to borrowers than does any other bank. | ||
| it functions as the government's bank only when commercial banks fail to do so. | ||
| it makes loans to individuals whom commercial banks do not believe are credit-worthy. | ||
| it stands ready to lend to any depository institution that it has decided should not fail. |
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QUESTION 33
The Federal Reserve System acts as the government's fiscal agent by
| providing checking account services for the government. | ||
| preparing the budget the President presents to Congress every year. | ||
| determining how to finance a deficit. | ||
| auditing taxpayers. |
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QUESTION 34
The Federal Reserve System was established in which year?
| 1913. | ||
| 1929. | ||
| 1865. | ||
| 1941. |
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QUESTION 35
By serving as the lender of last resort,
| the Fed provides check clearing services. | ||
| the Fed aids in the sale of government securities. | ||
| the Fed supervises depository institutions. | ||
| the Fed can prevent bank failures. |
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QUESTION 36
Depository institutions must
| use and pay for the services of the Federal Reserve System. | ||
| set their interest rates according to schedules established by the Federal Reserve System. | ||
| keep a certain percentage of their deposits as reserves. | ||
| turn over a percentage of their profits to the Federal Reserve System as payment for services provided by the Fed. |
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QUESTION 37
The Federal Reserve System has
| 50 district banks. | ||
| 24 district banks. | ||
| 12 district banks. | ||
| 7 district banks. |
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QUESTION 38
The part of the Federal Reserve System (the Fed) that holds the reserve balances of depository institutions is
| the Board of Governors. | ||
| the Federal Advisory Committee. | ||
| the Federal Open Market Committee. | ||
| the Federal Reserve district banks. |
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QUESTION 39
The potential for a financial breakdown at one financial institution to spread throughout the financial system is known as a
| systemic risk. | ||
| liquidity risk. | ||
| lending risk. | ||
| moral hazard. |
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QUESTION 40
A system in which depository institutions hold reserves that are less than the amount of total deposits is called
| fiat money banking. | ||
| required reserve banking. | ||
| fractional reserve banking. | ||
| central banking system. |
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QUESTION 41
Total reserves of private banks are
| all customer deposits. | ||
| the minimum amount banks need to hold against time deposits. | ||
| federal reserve notes. | ||
| deposits held at the Fed and vault cash. |
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QUESTION 42
A statement of assets and liabilities of any business entity is called
| a cash flow statement. | ||
| an income statement. | ||
| a balance sheet. | ||
| a statement of net worth. |
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QUESTION 43
Which of the following actions has no effect on the total money supply?
| The Federal Open Market Committee buys government securities. | ||
| There is a transfer of deposits from one bank to another bank. | ||
| There is change in the money multiplier. | ||
| The Federal Open Market Committee sells government securities. |
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QUESTION 44
Given a required reserve ratio of 20 percent, a commercial bank that has received a new deposit of $100 can make additional loans of
| $80. | ||
| $0. | ||
| $400. | ||
| $20. |
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QUESTION 45
The Federal Open Market Committee has responsibility for
| appointing members to the Board of Governors of the Federal Reserve system. | ||
| issuing orders to buy or sell government securities for the Fed. | ||
| advising the Treasury Department on monetary policy. | ||
| printing money. |
Each Federal Reserve Bank is
Answer
| a corporation. | ||
| a government owned enterprise. | ||
| a government subsidized entity. | ||
| a government-sponsored enterprise. |
A transaction in which the Fed agrees to buy a security one day and sell it back the next day is
Answer
| an overnight securitization operation. | ||
| a repurchase agreement. | ||
| a legal tender. | ||
| a rebate sale. |
The Federal Reserve document that states the goals of the FOMC and the target for the federal funds rate is known as the
Answer
| Directive. | ||
| Beige book. | ||
| Bluebook. | ||
| Green book. |
How long is the normal term in office for a Governor of the Federal Reserve Board?
Answer
| Five years | ||
| Seven years | ||
| Fourteen years | ||
| Life |
The federal funds rate is the interest rate on
Answer
| loans to banks from the Fed. | ||
| loans by banks to the Fed. | ||
| short-term loans between banks. | ||
| Treasury bills. |
Expenditures of each Federal Reserve Bank are approved by
Answer
| the U.S. Senate. | ||
| the President of the United States. | ||
| the U.S. Treasury Department. | ||
| the Federal Reserve Board of Governors. |
Federal Reserve Banks pay for their central banking operations through
Answer
| government tax revenue. | ||
| interest on the securities they own. | ||
| fees charged to banks that use their services. | ||
| dividends paid by local banks. |
When the Fed engages in open-market operations, the transactions are conducted by
Answer
| the Open Market Desk at the Federal Reserve Bank of New York. | ||
| the Open Market Desk at the Federal Reserve Board in Washington, D.C. | ||
| the National Bureau of Economic Research. | ||
| the Federal Open Market Committee. |
In 2006, Chairman Greenspan left the Fed because
Answer
| President Bush wanted him to resign. | ||
| he reached mandatory retirement age. | ||
| his term as Governor expired. | ||
| his term as Chairman expired. |
The Federal Reserve publication that discusses forecasts for the economy is known as the
Answer
| Redbook. | ||
| Beigebook. | ||
| Bluebook. | ||
| Greenbook. |
The FOMC directive
Answer
| describes forecasts for the economy. | ||
| states the target for the federal funds rate. | ||
| discusses the regional economies around the country. | ||
| shows the Fed's balance sheet. |
The chairman of the Federal Reserve Board who reduced the inflation rate from over 10 percent to about 3 percent in the early 1980s was
Answer
| Arthur Burns. | ||
| G. William Miller. | ||
| Paul Volcker. | ||
| Alan Greenspan. |
Which Fed chairman ensured the independence of the Federal Reserve in the 1950s?
Answer
| William McChesney Martin | ||
| Arthur Burns | ||
| Paul Volcker | ||
| G. William Miller |
There are ____ Federal Reserve Banks.
Answer
| seven | ||
| ten | ||
| twelve | ||
| fifteen |
Purchases and sales of government securities in the secondary market are known as
Answer
| discount borrowing and lending. | ||
| federal funds purchases and sales. | ||
| discounting. | ||
| open-market operations. |
The monetary base can be divided into
Answer
| currency plus transactions deposits. | ||
| vault cash plus reserves held at the Fed. | ||
| required clearing balances plus currency. | ||
| reserves plus currency. |
The Fed does not generally change reserve requirements to affect the money supply because
Answer
| the impact is too large. | ||
| the Fed needs the approval of Congress to do so. | ||
| it's not legal for the Fed to do so. | ||
| the Fed needs the approval of the President of the United States to do so. |
The Fed has decided to tighten monetary policy, so it decreases the money supply through
Answer
| defensive open-market operations. | ||
| dynamic open-market operations. | ||
| reduced discount loans for profit. | ||
| reduced discount loans for business needs. |
A haircut is
Answer
| the extra collateral the Fed requires above the value of a discount loan. | ||
| the extra principal a commercial bank requires the Fed to pay when making a discount loan. | ||
| the difference between what an investor pays for a bond and what the investor sells the bond for. | ||
| expected personal grooming for a member of the Board of Governors. |
Currency held by the nonbank public plus banks' vault cash plus banks' deposits at the Fed equals
Answer
| the Fed's capital stock. | ||
| discount loans. | ||
| the monetary base. | ||
| required clearing balances. |
The extra collateral the Fed requires above the value of a discount loan is known as
Answer
| the term premium. | ||
| a haircut. | ||
| a covenant. | ||
| secondary credit. |
Currency held by the nonbank public plus banks' reserves equals
Answer
| the Fed's capital stock. | ||
| discount loans. | ||
| the monetary base. | ||
| required clearing balances. |
The money supply divided by the monetary base equals
Answer
| the reserve ratio. | ||
| velocity. | ||
| high-powered money. | ||
| the money multiplier. |
The main liability on the Federal Reserve's balance sheet is
Answer
| discount loans. | ||
| securities. | ||
| monetary base. | ||
| capital. |
A bank in good condition may take out a loan without the Fed questioning the purpose or nature of the loan. Such a loan is known as
Answer
| a no documentation discount loan. | ||
| a haircut. | ||
| a covenant. | ||
| a primary credit discount loan. |
If the Open-Market Desk at the Fed buys securities when the federal funds rate is below the primary credit discount rate, the most likely effect is that the
Answer
| federal funds rate decreases. | ||
| primary credit discount rate decreases. | ||
| primary credit discount rate increases. | ||
| federal funds rate increases. |
In November and December, people use more currency than usual, so the Fed increases the money supply through
Answer
| defensive open-market operations. | ||
| dynamic open-market operations. | ||
| discount loans for profit. | ||
| discount loans for business needs. |
Reserves held by banks at the Fed that earn implicit interest payments in the form of earnings credits for Fed services are known as
Answer
| required clearing balances. | ||
| reserve requirements. | ||
| excess reserves. | ||
| non-transaction deposits. |
Required clearing balances
Answer
| pay interest in the form of earnings credits. | ||
| count as reserves and can be used to meet reserve requirements. | ||
| pay interest equal to the federal funds rate minus one percent. | ||
| are required to be held against transactions deposits. |
