Chapter 04 Functions of The Fed

Chapter 04: Functions of the Fed
1. Which of the following is NOT a major component of the Federal Reserve System?
a. member banks
b. Federal Open Market Committee
c. Securities and Exchange Commission
d. Board of Governors
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
LEARNING OBJECTIVES: FMAI.MADU.15.04.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 9/16/2016 1:54 AM
DATE MODIFIED: 5/2/2018 7:45 AM
2. As a result of the Financial Reform Act of 2010, the ____ was established to regulate financial products and services.
a. Federal Advisory Committee
b. Federal Open Market Committee
c. Consumer Financial Protection
Bureau
d. Board of Governors
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
3. Which of the following is NOT an activity of Fed district banks?

a. clearing checks
b. replacing old currency
c. providing loans to depository institutions
d. acting as an intermediary to match up lenders and borrowers in the stock
market
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
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4. All ____ are required to be members of the Federal Reserve System.

a. state banks
b. national banks
c. savings and loan associations
d. finance companies
e. state banks AND national banks
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
5. The ____ is made up of seven individual members, and each member is appointed by the president of the United States.
a. Board of Governors
b. Federal Reserve district bank
c. Federal Open Market Committee (FOMC)
d. Securities and Exchange Commission
ANSWER: a
POINTS: 1
DIFFICULTY: Easy

6. Which of the following is currently a main role of the Federal Reserve's Board of Governors?
a. regulating commercial banks
b. regulating foreign trade
c. controlling monetary policy
d. regulating commercial banks AND controlling monetary
policy
ANSWER: d
POINTS: 1
7. Members of the Board of Governors serve 14-year nonrenewable terms.

a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
8. With regard to monetary policy, which of the following is under the direct control of the Federal Reserve's Board of
Governors?
a. revising reserve requirements for depository institutions
b. authorizing changes in the amount of borrowing by the
Treasury
c. monitoring the stock market for insider trading
d. monitoring the derivatives market for illegal trading strategies
ANSWER: a
POINTS: 1
9. The ____ rate is the interest rate charged on the Fed’s short-term loans to depository institutions.
a. federal funds
b. prime
c. primary credit lending
d. real
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
10. Which of the following is an action that the Fed uses to increase or decrease the money supply?
a. buying or selling Treasury securities in the secondary market
b. adjusting the tax rate imposed on income earned on Treasury
securities
c. adjusting the coupon rate on Treasury bonds
d. selling Treasury securities in the primary market
ANSWER: a
POINTS: 1
KEYWORDS: Bloom's: Comprehension
11. The policy directive is provided by Board of Governors to the FOMC.

a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
12. Total funds of commercial banks will initially ____ by the dollar amount of securities ____ by the Fed.
a. increase; purchased
b. increase; sold
c. decrease; purchased
d. increase; purchased AND increase;
sold
ANSWER: a
POINTS: 1
13. The purchase of government securities by someone other than the Fed results in
a. an overall increase in funds among commercial banks.
b. an overall decrease in funds among commercial
banks.
c. offsetting changes in funds at commercial banks.
d. an increase in securities maintained by the Fed.
ANSWER: c
POINTS: 1


14. As the supply of funds in the banking system ____, the federal funds rate ____.
a. increases; declines
b. increases; increases
c. declines, declines
d. None of these are
correct.
ANSWER: a
POINTS: 1
15. Repurchase agreements are purchased by the Fed to

a. temporarily decrease the aggregate level of bank funds.
b. permanently increase the aggregate level of bank funds.
c. permanently decrease the aggregate level of bank
funds.
d. temporarily increase the aggregate level of bank funds.
ANSWER: d
POINTS: 1
16. When open market operations are used to ____ bank funds, the yield on debt instruments ____.

a. reduce; decreases
b. reduce; increases
c. increase; increases
correct.
ANSWER: b
POINTS: 1
17. ____ open market operations offset the impact of other conditions that affect the level of funds.
a. Active
b. Passive
c. Dynamic
d. Defensive
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
18. The main monetary policy goal of most central banks is to stabilize the value of the local currency against foreign
currencies.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy

19. The primary credit lending rate changes in accordance with changes in the federal funds rate.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
20. credit may be used for any purpose and is available only to depository institutions that meet specific
requirements for financial soundness.
a. Primary
b. Secondary
c. Tertiary
correct.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
21. To decrease the money supply, the Fed could the reserve requirement ratio.
a. increase
b. stabilize
c. reduce

d. eliminate
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
22. The the reserve requirement ratio, the the ultimate effect of any initial increase in the money supply.
a. lower; less
b. lower; greater
c. greater; less
d. lower; greater AND greater; less
ANSWER: d
POINTS: 1
23. The is directly responsible for controlling money supply growth.

a. Federal Advisory Council
b. FOMC
c. Board of Governors
d. President of the United States
ANSWER: b
POINTS: 1
DIFFICULTY: Easy

24. Assume that the reserve requirements ratio is 15 percent. An initial injection of $150 million could result in a
maximum change in the money supply of
a. $150 million.
b. $1 billion.
c. $1 million.
d. $22.5 million.
ANSWER: b
POINTS: 1
KEYWORDS: Bloom's: Application
25. The form of money consisting of currency held by the public and checkable deposits at depository institutions is
called:
a. M1
b. M2
c. M3
d. MMDA
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
26. The Depository Institutions Deregulation and Monetary Control Act of 1980 subjected
a. only member banks to the reserve requirements set by the Fed.
b. only S&Ls to the reserve requirements set by the Fed.
c. all depository institutions to the reserve requirements set by the Fed.
d. only national banks to reserve requirements set by the Fed.

ANSWER: c
POINTS: 1
27. The purpose of the Trading Desk of the Federal Reserve Bank of New York is to buy stocks for member commercial
banks.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
28. The voting members of the Federal Open Market Committee consist of the Board of Governors plus the
a. President of the United States.
b. presidents of the 12 Fed district banks.
c. presidents of 5 Fed district banks.
d. Federal Advisory Council.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
29. The Board of Governors is composed of

a. seven members appointed by the President of the United States.
b. the 12 presidents of Fed district banks.
c. the Federal Open Market Committee, plus the Federal Advisory Council.
d. the Federal Open Market Committee, plus the President of the United States.
ANSWER: a
POINTS: 1
30. The ____ is directly responsible for setting reserve requirements.

b. FOMC
c. Board of Governors
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
31. The ____ is directly responsible for conducting monetary policy.

b. FOMC
c. Senate
ANSWER: b
POINTS: 1
DIFFICULTY: Easy

32. Based on a 2003 policy, the primary credit lending rate is set
a. lower than the federal funds rate.
b. lower than the prevailing Treasury bill rate.
c. lower than the expected inflation rate.
d. above the federal funds rate.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
33. A(n) ____ in Federal Reserve float causes a(n) ____ in bank funds.
a. increase; increase
b. increase; decrease
c. decrease; decrease
d. increase; increase AND decrease; decrease
ANSWER: d
POINTS: 1

34. The chief objective of the European Central Bank is ____ in the countries of the eurozone.
a. maintaining low unemployment
b. ensuring that budget deficits do not exceed certain limits
c. maintaining price and currency stability
d. None of these are correct.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
35. Assume that the reserve requirement ratio is 12 percent and that the Fed uses open market operations to buy $200
million worth of Treasury securities. Assuming that banks use all funds except required reserves to make loans and that
the public does not store any cash, the money supply should ____ by about ____.
a. increase; $200 million
b. increase; $1.67 billion
c. decrease; $200 million
d. decrease; $1.67 billion
ANSWER: b
POINTS: 1
DIFFICULTY: Challenging
KEYWORDS: Bloom's: Application
36. The federal funds rate is the rate at which the Fed lends money directly to member banks.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy


37. When the Fed purchases securities, the total funds of commercial banks ____ by the market value of the securities
purchased by the Fed. This activity initiated by the FOMC's policy directive is referred to as a(n) ____ of money supply
growth.
a. increase; loosening
b. decrease; tightening
c. decrease; loosening
d. increase; tightening
e. None of these are
correct.
ANSWER: a
POINTS: 1
38. The Trading Desk is sometimes directed to ____ a sufficient amount of Treasury securities to ____ the federal funds
rate to a new targeted level set by the FOMC.
a. buy; decrease
b. sell; increase
c. buy; increase
d. sell; decrease
e. buy; decrease AND sell; increase
ANSWER: a
POINTS: 1


39. Which of the following statements is incorrect with respect to a single European monetary policy?
a. It allows for more consistent economic conditions across the countries.
b. It prevents any participating European country from solving local economic problems with its own unique
monetary policy.
c. It allows each country in Europe to use its own currency.
d. Each participating country will still be able to apply its own fiscal policy (tax and government expenditure
decisions).
e. All of these are true with respect to a single European monetary policy.
ANSWER: c
POINTS: 1
40. Since 2003, the Fed's rate on short-term loans to depository institutions is referred to as the:
a. discount rate
b. primary credit lending
rate
c. federal funds rate
d. prime rate
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
41. The euro has been adopted by all of the major countries of Western Europe, including Switzerland and the United
Kingdom.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
42. Most of the Fed's income is transferred to the U.S. Department of Justice.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
43. All commercial banks are required to be members of the Fed.

a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy

44. The effects of the credit crisis in 2008 were largely confined to the United States, so central banks in other nations did
not have to reduce their targeted interest rate levels.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
45. Each Federal Reserve district bank is responsible for reporting its regional conditions, and all of these reports are
consolidated to compose the Beige Book.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
46. When the Trading Desk sells a sufficient amount of Treasury securities, it creates a surplus of funds in the banking
system. Consequently, the federal funds rate decreases along with other interest rates.
a. True
b. False
ANSWER: b
POINTS: 1


47. Adjustment of the primary credit lending rate is the most common means by which the Fed controls the money supply.
a. True
b. False
ANSWER: b
POINTS: 1
48. To increase the money supply, the Trading Desk would be instructed to sell government securities.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
49. To increase the money supply, the Fed may increase the reserve requirement ratio.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy

50. Which of the following is NOT true with respect to the Federal Reserve Act of 1913?
a. It established reserve requirements for member commercial banks.
b. It specified 14 districts across the United States as well as a city in each district where a Federal Reserve
district bank was to be established.
c. Congress was motivated to pass the act and establish a central bank because the United States had experienced
several banking panics in the preceding years.
d. All of these are true.
ANSWER: b
POINTS: 1
DATE MODIFIED: 5/2/2018 1:31 PM
51. The advisory committee making recommendations to the Fed about economic and banking related issues is the:
a. Community Advisory Council
b. Community Depository Institutions Advisory Council
c. Federal Advisory Council
d. None of these are correct.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
52. The advisory committee offering views on issues related to credit unions is the:
a. Community Advisory Council
b. Community Depository Institutions Advisory
Council
c. Federal Advisory Council
d. Federal Open Market Committee

ANSWER: b
POINTS: 1
DIFFICULTY: Easy
53. When the Fed buys Treasury bills as a means of increasing the money supply, it places ____ pressure on their prices
and ____ pressure on their yields.
a. upward; upward
b. downward; downward
c. upward; downward
d. downward; upward
ANSWER: c
POINTS: 1
54. To increase the money supply growth, the Fed could

a. sell government securities in the secondary market
b. increase the primary credit lending rate.
c. increase the reserve requirement ratio.
d. All of these are correct.
e. None of these are correct.
ANSWER: a
POINTS: 1


55. When the Fed sells securities, the total funds of commercial banks ____ by the market value of the securities sold by
the Fed. This activity initiated by the FOMC's policy directive is referred to as a ____ of money supply growth.
a. increase; loosening
b. decrease; loosening
c. increase; tightening
d. decrease; tightening
e. None of these are
correct.
ANSWER: d
POINTS: 1
56. ____ includes currency held by the public and checking deposits as well as savings accounts and small time deposits,
money market deposit accounts, and some other items.
a. M1
b. M2
c. M3
correct.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy

57. The ____ meets with the Board of Governors twice a year and offers views on the economic circumstances and
financial services needs of consumers and communities.
a. Consumer Financial Protection
Bureau
b. Federal Advisory Council
c. Community Advisory Council
d. Federal Trade Commission
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
58. The Fed’s primary goal has historically been to add liquidity to the mortgage market by continuously purchasing
mortgage-backed securities.
a. True
b. False
ANSWER: b
POINTS: 1
59. When the Fed purchases _______, it is attempting to directly stimulate the housing market.
a. commercial paper
b. short-term Treasury securities
c. mortgage-backed securities
d. consumer loans
ANSWER: c
POINTS: 1
DIFFICULTY: Easy


60. The Fed’s purchases of long-term Treasury securities in recent years were intended to
a. reduce long-term interest rates.
b. reduce interest rates on credit cards and consumer
loans.
c. increase the federal funds rate.
d. restore confidence in the market for these securities.
ANSWER: a
POINTS: 1
61. Which of the following did the Fed NOT do during the credit crisis?
a. purchase mortgage-backed securities
b. purchase commercial paper
c. reduce the targeted federal funds rate
d. prevent depository institutions from obtaining funding through the discount window
ANSWER: d
POINTS: 1
62. The term “quantitative easing” refers to the Fed’s

a. purchases of only short-term Treasury securities.

b. sales of only short-term Treasury securities.
c. purchases of various types of debt securities, including risky debt securities.
d. purchases of only commodities such as gold.
ANSWER: c
POINTS: 1
63. When the Fed initiated a program to purchase commercial paper, one of its primary goals was to
a. prevent financial institutions from holding commercial paper.
b. require that financial institutions increase their holdings of commercial paper.
c. increase activity in the market for commercial paper and boost the confidence of investors in commercial
paper.
d. prevent financial institutions from issuing commercial paper in the future.
ANSWER: c
POINTS: 1
64. If the Fed initiates a program to purchase long-term Treasury securities, it is most likely attempting to
a. reduce the rate on short-term Treasury securities.
b. reduce the rate on commercial paper.
c. reduce inflation.
d. reduce long-term interest rates.
ANSWER: d
POINTS: 1


Chapter 04 Functions of The Fed

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Chapter 04 Functions of The Fed

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Chapter 04: Functions of the Fed

3. Which of the following is NOT an activity of Fed district banks?

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QUESTION TYPE: Multiple Choice

4. All ____ are required to be members of the Federal Reserve System.

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7. Members of the Board of Governors serve 14-year nonrenewable terms.

11. The policy directive is provided by Board of Governors to the FOMC.

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LEARNING OBJECTIVES: FMAI.MADU.15.04.03

15. Repurchase agreements are purchased by the Fed to

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NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03

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23. The is directly responsible for controlling money supply growth.

DATE CREATED: 9/16/2016 5:43 AM

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29. The Board of Governors is composed of

30. The ____ is directly responsible for setting reserve requirements.

31. The ____ is directly responsible for conducting monetary policy.

HAS VARIABLES: False

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DATE MODIFIED: 5/2/2018 7:53 AM

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QUESTION TYPE: Multiple Choice

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STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02

43. All commercial banks are required to be members of the Fed.

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KEYWORDS: Bloom's: Comprehension

KEYWORDS: Bloom's: Knowledge

d. Federal Open Market Committee

54. To increase the money supply growth, the Fed could

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NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03

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HAS VARIABLES: False

62. The term “quantitative easing” refers to the Fed’s

a. purchases of only short-term Treasury securities.

HAS VARIABLES: False

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