Q&A Hero

Q: Federal Reserve Banks mostly pay for their central banking operations through a. government tax revenue.b. interest on the securities they own.c. fees charged to banks that use their services. d. dividends paid by local banks.

Q: What are the primary arguments for and against the independence of the Fed?

Q: What step does the Board of governors of the Fed take to ensure that the Fed does not built itself into an inefficient bureaucracy?

Q: The directors of a Federal Reserve Bank includea. three class A directors, who are bankers and are chosen by member banks; three class B directors, who are business leaders and are also chosen by member banks; and three class C directors, who are public-interest directors and are chosen by the Board of Governors.b. three class A directors, who are bankers and are chosen by member banks; three class B directors, who are politicians and are also chosen by member banks; and three class C directors, who are public-interest directors and are chosen by the Board of Governors.c. three class A directors, who are bankers and are chosen by public voting; three class B directors, who are politicians and are also chosen by member banks; and three class C directors, who are public-interest directors and are chosen by the Board of Governors.d. three class A directors, who are bankers and are chosen by member banks and three class B directors, who are business leaders and are also chosen by public voting.

Q: What are the limitations to the Fed's independence?

Q: Is there evidence that the Federal Reserve has built itself into an inefficient bureaucracy?

Q: Which of the following statements is correct? A) The Fed has difficulty covering its normal expenses, but is reluctant to ask Congress for money. B) The Fed is dependent on the annual appropriations it receives from Congress. C) The Fed's profits are substantial, even when compared to the largest U.S. corporations. D) At one time the Fed made substantial profits, but falling interest rates have greatly reduced them.

Q: In what ways is the Fed independent of the political process?

Q: Describe the relationship between central bank independence and macroeconomic variables such as inflation and growth.

Q: Most of the Fed's earnings come from A) fees charged to financial institutions for check clearing. B) interest on the securities it holds. C) interest on discount loans. D) congressional appropriations.

Q: How are the operations of the Federal Reserve financed?

Q: All of the following help make the Fed independent of the political process EXCEPT A) financial independence. B) chair of Fed receives a lifetime appointment. C) Board members receive a long, nonrenewable appointment. D) Board members' terms expire at different times, reducing the possible number of appointees by any one president.

Q: Why are the deliberations of the FOMC kept secret?

Q: Which of the following officially ended the cooperation between the Treasury and the Fed that had taken place during World War 2? A) Truman doctrine B) Federal Reserve Act of 1951 C) Dodd-Frank Act D) Treasury-Federal Reserve Accord

Q: A Federal Reserve policymaker voting to tighten monetary policy is most likely voting for optiona. A.b. B. c. C. d. D.

Q: What is the main reason the Fed operates in a political arena? A) It lacks a constitutional mandate. B) The members of the Board of Governors must run for reelection every fourteen years. C) The members of the Board of Governors are typically prominent politicians. D) It is under the direct control of Congress.

Q: Describe the Beigebook, the Greenbook, and the Bluebook.

Q: How did the Fed peg interest rates during World War 2? A) by setting a low federal funds rate B) by agreeing to purchase any bonds that were not purchased by private investors C) through extensive use of discount loans D) through nationalization of the banking system

Q: The Fed document that shows different policy options is called the a. Beigebook.b. Greenbook. c. Bluebook.d. Redbook.

Q: Why isn't the right to vote at FOMC meetings considered to be very important within the Fed?

Q: The Fed does not have to go through the normal congressional appropriations process because A) its expenses are very small. B) it was given enough funds at the time of its founding to provide for its expenses indefinitely. C) it is self financing. D) it is not part of the legislative branch of the federal government.

Q: The Federal Reserve publication that discusses forecasts for the economy is known as the a. Redbook.b. Beigebook. c. Bluebook.d. Greenbook.

Q: Describe the roles of the Federal Reserve governors other than the chairman.

Q: Which of the following statements is correct? A) The Fed is fully insulated from external pressures due to the long terms that members of the Board of Governors serve. B) The Fed is fully insulated from external pressures because it does not need to go through the normal congressional appropriations process. C) The Fed is fully insulated from external pressures because it has a constitutional mandate. D) The Fed is only partially insulated from external pressures.

Q: One half of a percentage point equals_____ basis points.a.0.5b. 5c. 50d. 500

Q: Comment on the success of various Fed chairmen in reducing inflation.

Q: In the early post-war years, the Fed was reluctant to continue its wartime agreement with the Treasury because it believed the result would be A) recession. B) inflation. C) higher taxes. D) lower taxes.

Q: One-hundredth of a percentage point is called a(n)____ point.a. stockb. basicc. basisd. federal interest

Q: During World War II A) the Board of Governors was temporarily disbanded. B) the Fed was not allowed to make discount loans. C) the Fed agreed to hold interest rates on short-term Treasury securities at low levels. D) the Fed agreed not to buy Treasury securities.

Q: How do individual become members of the Board of Governors?

Q: The main object of FOMC voting is to set the target a. inflation rate.b. federal funds rate. c. unemployment rate.d. foreign exchange rate.

Q: What are the roles of Federal Reserve district banks?

Q: What is included in the public statement released by the FOMC following the conclusion of its meeting?

Q: When the Fed engages in an overnight reverse repoa. a bank agrees to hold a certain amount of clearing balances at the Fed. b. the fed sells securities and agrees to buy them back in one day.c. a primary government securities dealer agrees to sell a security to the Fed one day and buy it back the next day.d. The Fed repossesses property that a bank owns as punishment for the bank's failure to pay off a discount loan.

Q: What was the original intent of the Federal Reserve Act of 1913?

Q: What are the three books to which the FOMC has access and what information is included in each?

Q: In 2006, Chairman Greenspan left the Fed because a. President Bush wanted him to resign.b. he reached mandatory retirement age. c. his term as Governor expired.d. his term as Chairman expired.

Q: When the Fed engages in an overnight repoa. a bank agrees to hold a certain amount of clearing balances at the Fed.b. a secondary government securities dealer agrees to buy a security from the Fed one day and sell it back the next day.c. a primary government securities dealer agrees to sell a security to the Fed one day and buy it back the next day.d. The Fed repossesses property that a bank owns as punishment for the bank's failure to pay off a discount loan.

Q: How did the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 affect the Fed's

Q: Who serves as voting members of the Federal Open Market Committee (FOMC)?

Q: What are the two major drawbacks of the International Monetary Fund that prevents it from bailing out countries incrises?

Q: Primary government securities dealers are____that meet certain capital requirements and agree to actively transact with the Fed when it engages in open-market operations. a. small investment banks and brokersb. large stockbrokersc. large investment banks and brokers d. community banks and credit unions

Q: What is the primary objective of the Financial Stability Oversight Council?

Q: How should a country respond when foreign investors withdraw investments from that country?

Q: Open-market operations are carried out between the Open Market Desk of the Fed and a. foreign central banks.b. the U.S. government.c. citizens residing in the U.S.d. primary government securities dealers.

Q: Who are the members of the Financial Stability Oversight Council?

Q: Suppose the U.S. has domestic savings of $50 billion, domestic investment of $120 billion, and a government budget deficit of $150 billion. Japan has domestic savings of 25 trillion yen, domestic investment of 10 trillion yen, and a government budget deficit of 8 trillion yen. Calculate the amounts of net foreign investment by the U.S. and by Japan.

Q: The interest rate on short-term loans between banks is known as the a. primary credit discount rate.b. federal funds rate.c. commercial paper rate. d. T-bill rate.

Q: How does the Fed reach its target for the federal funds rate? A) by changing the discount rate B) by changing reserve requirements C) by adjusting the level of reserves D) by directly setting the federal funds rate

Q: Assume that relative purchasing-power parity holds. In 2004, the price level in Japan is 120 and the price level in the U.S. is In 2005, the price level in Japan is 121 and the price level in the U.S. is The exchange rate in 2004 is 112 yen per dollar. Calculate the exchange rate in

Q: If a member of the Board of Governors is limited to one 14-year term, how did Alan Greenspan serve 19 years on the Board of Governors? A) A special exemption was approved for him. B) The rule was not in place at the time. C) He completed the remaining years left on someone else's term and then served one 14-year term. D) He didn't serve consecutive terms.

Q: Which of the following is NOT a role of Federal Reserve Banks? A) conduct discount lending B) serve on the FOMC C) set the interest rate on reserves D) manage check clearing in the banking system

Q: Also assume that the current nominal exchange rates are 115 yen per dollar and 4 pesos per dollar. Calculate the real exchange rates between each pair of countries.

Q: Assuming a required reserve ratio of 5%, interest rate on reserves of 1%, and interest rate on loans of 6%, what is the effective cost of the reserve requirement on a $10,000 deposit?A) 0.05%B) 0.25%C) 0.30%D) 1%

Q: The Dodd-Frank Act removed which group from decisions regarding the presidents of Federal Reserve Banks? A) Class A directors B) Class B directors C) Class C directors D) Board of Governors

Q: Assume that the price level in Japan is 120, the price level in the U.S. is 145, and the price level in Mexico is110. Also assume that the current nominal exchange rates are 115 yen per dollar and 4 pesos per dollar. Calculate the real exchange rates between each pair of countries.

Q: Assuming a required reserve ratio of 8%, interest rate on reserves of 5%, and interest rate on loans of 4%, what is the effective cost of the reserve requirement on a $1000 deposit?A) 0.05%B) 0.28%C) 0.32%D) 4%

Q: The original intent of the Federal Reserve Act of 1913 was to provide the Fed with what role? A) regulator of the banking system B) lender of last resort C) manage the exchange rate D) maintain a balanced budget

Q: Assume that the only good traded between Mexico, the U.S., and Canada is chicken, which is produced by all three countries. If the cost of producing a pound of chicken is 5 pesos in Mexico, 1 U.S. dollar in the U.S., and 2 Canadian dollars in Canada, and if the law of one price holds, what are each of the exchange rates between the three countries?

Q: Which of the following statements regarding member banks is true? A) A majority of banks are part of the Federal Reserve System as well as a majority of bank deposits. B) A minority of banks are part of the Federal Reserve System, but they have a majority of deposits. C) A majority of banks are part of the Federal Reserve System, but they have a minority of deposits. D) A minority of banks are part of the Federal Reserve System as well as a minority of deposits

Q: Congress authorized a second Bank of the United States partly in response to: A) difficulty in funding the American Revolution B) difficulty in funding the War of 1812 C) difficulty in funding the Industrial Revolution D) difficulty in funding the Civil War

Q: Investment in foreign countries that occurs by installing capital goods and using them to produce output is referred to asa. directed capital.b. direct investment. c. capital investiture.d. portfolio investment.

Q: Suppose the exchange rate adjusts so that interest-rate parity holds. Also assume that the interest rate on a one-year Canadian bond is 3 percent and the interest rate on a one-year U.S. bond is 5 percent.a. If the exchange rate today is 1.40 Canadian dollars per U.S. dollar, what do you expect the exchange rate to be one year from now?b. Suppose relative purchasing-power parity holds, and the inflation rate in Canada is expected to be 1 percent over the next year. What is the expected inflation rate in the United States?

Q: The Bank of the United States faced opposition from which of the following? A) local banks who resented the Bank's supervision B) advocates of limited government who distrusted its power C) farmers and small businesses who resented the Bank's interference with their ability to obtain loans D) all of the above

Q: Investment in foreign countries that occurs by purchasing financial securities is referred to as a. directed capital.b. direct investment. c. capital investiture.d. portfolio investment.

Q: Answer the questions below. a.Suppose the Federal Reserve raises the federal funds rate in the United States but people believe that the inflation rate will rise by more than the Fed raised the federal funds rate.What do you expect to happen to the exchange rate? Explain why. b.As the exchange rate changes in the direction you determined in part a, what happens to the prices of imports and exports in the United States and in other countries? Explain. c. What happens to net exports in the United States and in other countries that trade with theUnited States in the short run? In the long run? Explain.

Q: In 2012, the House of Representatives voted to have what type of audit of the Fed? A) auditing of financial statements B) auditing lending policy that took place during the financial crisis of 2007-2009 C) auditing of monetary policy decisions D) auditing of personal finances of members of the Board of Governors

Q: Foreign investment is composed of______ investment plus______ investment.a. inventory; financialb. portfolio; directc. portfolio; indirectd. inventory; physical capital

Q: Suppose you are an investor who is considering buying a one-year British government bond that has a 4 percent interest rate or a one-year French government bond with a 7 percent interest rate. The exchange rate today is 2.00 euros per pound and you expect the exchange rate to be 2.10 euros per pound one year from now.a.Which bond would you purchase? Why? Show your calculations.b.Suppose you expect the exchange rate to be 2.05 euros per pound in one year, instead of 2.10 euros per pound. Would you change your decision about which bond to buy? Explain and show your calculations.

Q: The Banking Acts of 1933 and 1935 A) established the Federal Reserve System. B) increased central control of the Federal Reserve System. C) eliminated the authority of the Board of Governors to set reserve requirements. D) made the Secretary of the Treasury a member of the Board of Governors.

Q: U.S. citizens invested $10 billion in foreign securities during a certain year and $21 billion in acquiring capital goods in foreign countries while foreigners invested only $27.5 billion in U.S. during that year. The net foreign investment of U.S. during that year was .a. -$3.5 billion. b. -$58.5 billion. c. $1.2 billion.d. $3.5 billion.

Q: To conduct open market operations, the FOMC issues a directive to A) the trading desk at the Federal Reserve Bank of New York. B) the Board of Governors in Washington, D.C. C) the presidents of the district banks. D) the chairman of the New York Stock Exchange.

Q: The balance on the current account plus the balance on the capital and financial account equals a.0b. 1 . c. -1. d.100

Q: The president of which Federal Reserve bank is always a voting member of the Federal Open Market Committee? A) Philadelphia B) Boston C) Chicago D) New York

Q: The amount foreign citizens, firms, and governments invest in a country minus the amount that the country's citizens, firms, and governments invest abroad isa. the trade balance.b. the balance on current account. c. the capital-account balance.d. the balance on capital and financial account.

Q: The Chairman of the Federal Open Market Committee is also A) the president of the Federal Reserve Bank of New York. B) the chairman of the Securities and Exchange Commission. C) the chairman of the Federal Deposit Insurance Corporation. D) the chairman of the Board of Governors.

Q: The movement to set up a central bank in the United States was spurred by the financial panic that occurred inA) 1816B) 1907C) 1929D) 1987

Q: The sum of net exports of goods and services plus net income from abroad plus net unilateral current transfers equalsa. the trade balance.b. the balance on current account. c. the capital account balance.d. the capital and financial account balance.

Q: The national economic forecast for the next two years prepared by the staff of the Board of Governors is published in the A) green book. B) beige book. C) blue book. D) Fed book.

Q: During the 2008 financial crisis, the dollar_____ in nominal terms.a. appreciated sharplyb. appreciated slightlyc. depreciated slightlyd. depreciated sharply