Q&A Hero

Q: If the desired reserve ratio is 15 percent, then for every dollar that is deposited in the bank, the bank will A) keep 15 cents as reserves. B) keep 85 cents as reserves. C) keep 85 cents as reserves and loan 85 cents. D) loan 15 cents. E) keep 15 cents as reserves and loan 15 cents.

Q: When the First Bank of Townsville makes a loan, it A) prints money. B) borrows the money from the Fed. C) creates a checkable deposit. D) decreases the quantity of money. E) increases its reserves.

Q: Assume the First Bank of Townsville makes a loan of $2,500. This loan will A) increase the quantity of money initially by $2,500. B) decrease the quantity of money initially by $2,500. C) have no change on the quantity of money, just its composition. D) increase the First Bank of Townville's liabilities at the Fed. E) increase the First Bank of Townville's reserves.

Q: The process of money creation by the banking system is limited, in part, by the A) number of banks. B) desired reserve ratio. C) number of depositors. D) Comptroller of the Currency. E) laws passed each year by the U.S. Congress.

Q: The amount of loans that a bank can create is limited by A) a law enacted by Congress. B) the bank's excess reserves. C) a directive from the Federal Reserve System, which takes into account the bank's financial stability. D) the real interest rate. E) the bank's government securities.

Q: Banks create money by A) printing currency. B) asking the Fed to print more currency. C) lending to the Fed. D) making loans. E) buying government securities.

Q: When a bank receives deposits, A) it must hold the entire amount as reserves in case of withdrawal. B) the Fed requires it to hold only a small percentage as reserves. C) it and it alone decides how much it will hold as reserves. D) its liabilities increase in amount but its assets do not change. E) its assets increase in amount but its liabilities do not change.

Q: Banks create money by A) printing paper money. B) minting coins. C) making loans. D) buying government securities. E) None of the above because banks cannot create money; only the Federal Reserve can create money.

Q: Banks create money by A) printing dollar bills without limit. B) creating deposits without limit. C) printing money up to their required reserve limit. D) making loans and creating deposits, a process that is limited by the size of banks' excess reserves. E) buying U.S. government securities with cash.

Q: New money is created in the U.S. economy by A) increased federal government expenditures. B) banks that create checkable deposits. C) the U.S. Treasury. D) U.S. Department of Mint. E) the U.S. Congress.

Q: If the Federal Reserve lowers the required reserve ratio, people will end up taking out ________ because the interest rates ________. A) fewer loans; will rise B) more loans; will fall C) the same number of loans; will not change D) more loans; will rise E) fewer loans; are controlled by the economic conditions alone

Q: If the Federal Reserve ________ the required reserve ratio, the interest rate ________. A) lowers; rises B) lowers; falls C) raises; does not change D) raises; falls E) Not enough information is given because the effect depends also on the size of the monetary base.

Q: If Federal Reserve notes and coins are $765 billion, and banks' reserves at the Fed are $8 billion, the gold stock is $11 billion, and the Fed owns $725 billion of government securities, what does the monetary base equal? A) $765 billion B) $773 billion C) $776 billion D) $744 billion E) $1,509 billion

Q: The monetary base is the A) minimum reserve banks must hold to cover any losses from unpaid loans. B) sum of coins, Federal Reserve notes, and banks' reserves at the Fed. C) sum of gold and foreign exchange held by the Fed. D) sum of government securities and loans to banks held by the Fed. E) sum of coins, required reserves, and banks' loans.

Q: The discount rate is the interest rate that A) commercial banks charge their customers. B) commercial banks charge each other for the loan of reserves. C) the Fed charges the government for loans. D) the Fed charges commercial banks when it loans reserves to the banks. E) the Fed pays commercial banks on their reserves held at the Fed.

Q: The minimum percent of deposits that banks must hold and cannot loan is determined by the A) interest rate. B) discount rate. C) required reserve ratio. D) federal funds rate. E) ratio of M2 to M1.

Q: The Fed's policy tools include A) required reserve ratios, the discount rate, open market operations, and extraordinary crisis measures. B) holding deposits for the U.S. government, reserve requirements, and the discount rate. C) setting regulations for lending standards and extraordinary crisis measures. D) supervision of the banking system and buying and selling commercial banks. E) required reserve ratios, income tax rates, and open market operations.

Q: The Fed's policy is determined by the A) Federal Open Market Committee. B) Executive Council to the Governor. C) Regional Federal Reserve Banks. D) Board of Governors. E) Federal Monetary Policy Committee.

Q: The Board of Governors of the Federal Reserve System has seven members appointed by the ________ that serve a term of ________ in order to ________. A) U.S. congress; 4 years; fulfill a mandate within the U.S. constitution B) U.S. senate; 14 years; provide continuity in the governing of the U.S. economy C) U.S. president and confirmed by the U.S. senate; 14 years; provide continuity in the governing of the U.S. economy D) U.S. president and confirmed by the U.S. congress; 14 years; provide continuity in the governing of the U.S. economy E) U.S. president and confirmed by the U.S. senate; 4 years; fulfill a mandate within the U.S. constitution

Q: The Board of Governors of the Federal Reserve System has A) 12 members appointed by the president of the United States. B) 12 members elected by the public. C) seven members appointed by the president of the United States. D) seven members elected by the public. E) seven members appointed to life terms.

Q: Regulating the amount of money in the United States is one of the most important responsibilities of the A) State Department. B) state governments. C) Treasury Department. D) Federal Reserve. E) U.S. Mint.

Q: The monetary base does NOT include which of the following items? i. Federal Reserve notes ii. banks' reserves at the Federal Reserve iii. U.S. government securities owned by the Federal Reserve A) i only B) ii only C) iii only D) both i and ii E) both ii and iii

Q: The monetary base is equal to the sum of coins, A) currency and banks' reserves at the Federal Reserve. B) currency and checkable deposits at banks. C) currency, banks' reserves at the Federal Reserve and checkable deposits at banks. D) and checkable deposits at banks. E) U.S. government securities owned by the Federal Reserve and Federal Reserve notes.

Q: The monetary base is equal to A) M1. B) M2. C) currency and coins in circulation plus checkable deposits. D) the sum of coins, Federal Reserve notes, and banks' reserves at the Fed. E) the sum of coins, Federal Reserve notes, and gold at the Fed.

Q: The monetary base is equal to A) banks' assets plus liabilities. B) Federal Reserve notes plus coins plus banks' reserves at the Fed. C) checkable deposits plus coins plus traveler's checks. D) checkable deposits plus coins plus banks' assets. E) M2 minus M1.

Q: The monetary base is the sum of A) Federal Reserve notes and banks' reserves at the Fed. B) coins, Federal Reserve notes, and individuals' deposits at the Fed. C) Federal Reserve notes, Treasury deposits at the Fed, banks' reserves at the Fed, and coins. D) coins, Federal Reserve notes, and banks' reserves at the Fed. E) coins, Federal Reserve notes, and gold at the Fed.

Q: The policy tool of "credit easing" refers to the ________. A) Fed's purchase of private securities to stimulate banks' lending B) Fed's requirement that the federal government must lend to directly to home buyers C) federal government's requirement that the Fed must lend directly to home buyers D) Fed's lowering of the federal funds rate to zero E) Treasury's issuance of federal debt to finance home buying

Q: ________ by the Fed means that the Fed ________. A) Credit easing; bought private securities from financial institutions B) Credit easing; made loans directly to home buyers C) Credit easing; tried to lower long-term interest rates D) Quantitative easing; required private banks to increase their lending to home buyers E) Quantitative easing; decreased in the required reserve ratio

Q: In 2008, the Fed created a new policy tool called A) quantitative easing, which allowed the Fed to buy private securities as well as government securities. B) quantitative easing, which required the Fed to pay interest on required reserves. C) open market operations, which required the Fed to buy securities from only the federal government. D) federal funds zero-rate, which required the Fed to lower the rate to near zero percent. E) interest rate reductions, which allowed the Fed to lower interest rates paid to banks.

Q: If the Fed engages in quantitative easing, it has likely A) decreased the federal funds rate to almost zero by buying large sums of securities. B) increased the discount rate to prevent inflation. C) decreased the discount rate by selling its own securities. D) increased the federal funds rate by selling private securities. E) started paying interest on required reserves.

Q: Quantitative easing by the Fed refers to A) the creation of bank reserves by engaging in large-scale open market operation at very low interest rates. B) selling private securities issued by the Fed. C) decreasing the money supply during a recession to prevent inflation. D) lowering the federal funds rate while increasing the discount rate. E) lowering the required reserve ratio to zero percent.

Q: Which of the following policy tools did the Fed create in 2008 to address the financial crisis? i) quantitative easing ii) credit easing iii) open market operations A) i and ii B) i only C) ii only D) i and iii E) ii and iii

Q: In response to the financial crisis in 2008, the Fed created which of the following policy tools? A) quantitative easing B) the required reserve ratio C) the discount rate D) the federal funds rate E) open market operations

Q: When the Fed engages in open market operations, it is buying or selling A) capital equipment. B) U.S. government securities newly issued by the U.S. Treasury. C) U.S. government securities. D) loans made to banks to meet the legal reserve requirement ratio. E) gold.

Q: Open market operations are when the Fed buys or sells A) government securities from the government. B) corporate securities from banks or some other business. C) government securities from banks or some other business. D) corporate securities from the government. E) gold.

Q: Open market operations are the A) purchase or sale of government securities by the Fed. B) lending of reserves to the banking system by the Fed. C) borrowing of reserves by the Fed from the banking system. D) minimum percentage of loans that banks must retain as reserves in the open market. E) purchase or sale of gold by the Fed.

Q: If the Fed increases the discount rate, commercial banks pay a ________ interest rate if they borrow money from the Fed and will therefore ________. A) higher; borrow less money from the Fed and make fewer loans to consumers B) higher; borrow more money from the Fed and make more loans to consumers C) lower; borrow more money from the Fed and make more loans to consumers D) lower; borrow less money from the Fed and make fewer loans to consumers E) higher; deposit more money into their reserves at the Fed

Q: If the Fed increases the discount rate, A) commercial banks pay a higher interest rate if they borrow from the Fed. B) commercial banks pay a lower interest rate if they borrow from the Fed. C) commercial banks' assets increase. D) commercial banks find it more profitable to increase their loans to businesses. E) commercial banks increase their lending to the Fed.

Q: The discount rate is A) the interest rate that commercial banks have to pay for any reserves that they borrow from the non-bank public. B) the interest rate that commercial banks have to pay to the owners of bank deposits. C) equal to the nominal interest rate minus the inflation rate. D) the interest rate that commercial banks pay for reserves that they borrow from the Fed. E) the interest rate that commercial banks receive for the reserves that they have on reserve at the Fed.

Q: The discount rate is A) the interest rate paid when a bank borrows reserves from another bank. B) the interest rate paid when a commercial bank borrows reserves from the Fed. C) the reduction in the interest rate given to the bank's best customers. D) another name for the long-term interest rate. E) the interest rate the Fed pays banks for the reserves the banks keep at the Fed.

Q: The discount rate is the A) banks' real interest rate. B) interest rate at which the Fed will loan reserves to commercial banks. C) interest rate banks charge the Fed when the Fed borrows from the banks. D) name of the interest rate banks charge their most credit-worthy borrowers. E) interest rate paid on U.S. government securities.

Q: The interest rate the Federal Reserve charges a bank when it borrows reserves from the Fed is called the A) market interest rate. B) federal funds rate. C) discount rate. D) prime rate. E) borrowing rate.

Q: Which of the following statements is correct? A) required reserves = (total deposits) (excess reserve ratio) B) required reserves = (total reserves) (excess reserve ratio) C) required reserves = (total deposits) (required reserve ratio) D) required reserves = (total deposits) (required reserve ratio) E) required reserves = (total deposits) (required reserve ratio) - excess reserves

Q: The required reserve ratio is the A) amount of excess reserves the bank holds just in case. B) total amount of reserves the bank holds in its vaults. C) total amount of reserves the bank holds at the Fed. D) amount of reserves banks are required by the Fed to be held as a percentage of the bank's deposits. E) amount of reserves banks are required by the Fed to be held as a percentage of the bank's loans.

Q: The required reserve ratio is the minimum percentage of ________ that banks are required to hold by regulation. A) reserves as total assets B) deposits as total assets C) reserves as deposits D) deposits as reserves E) reserves as total liabilities

Q: The required reserve ratio is 10 percent and Charlie deposits $3,000 in her checking account. The bank must A) increase reserves by $3,000. B) increase reserves by $300. C) decrease reserves by $3,000. D) decrease reserves by $300. E) not change its reserves until Charlie decides to withdraw her funds.

Q: Required reserve ratios are the minimum amount of A) deposits any one bank is allowed to accept as percentage of its capital. B) reserves any one bank must hold as a percentage of its loans. C) reserves any one bank must hold as a percentage of its deposits. D) deposits any one bank must hold as a percentage of its reserves. E) reserves any one bank must hold as a percentage of its total assets.

Q: Which of the following is a tool the Fed uses to adjust the quantity of money? i. The Fed can change the interest rate banks charge for loans to their prime customers. ii. The Fed can change the discount rate on loans to banks. iii. The Fed can buy or sell government securities. A) i only B) ii only C) iii only D) i and iii E) ii and iii

Q: Which of the following are policy tools used by the Federal Reserve? i. the federal personal income tax ii. open market operations iii. changing the required reserve ratio A) i only B) ii only C) iii only D) ii and iii E) i, ii, and iii

Q: The Fed influences the interest rate by using which of the following tools? i. open market operations ii. taxes on bank accounts iii. changes in required reserve ratios A) i only B) ii only C) iii only D) Both i and iii E) i, ii and iii

Q: Which of the following is a policy tool of the Fed? i. setting the required reserve ratios ii. conducting open market operations iii. quantitative easing A) i only B) ii only C) iii only D) Both i and ii E) i, ii, and iii

Q: Which of the following is a tool the Federal Reserve System can use to regulate the quantity of money? i. changing the discount rate ii. conducting open market operations iii. changing the required reserve ratio A) i only B) ii only C) ii and iii D) i and ii E) i, ii, and iii

Q: Which of the following is NOT one of the Fed's monetary policy tools? A) changing the discount rate B) conducting open market purchases of government securities C) changing the coupon rate D) changing the required reserve ratio E) conducting open market sales of government securities

Q: The four main policy tools the Federal Reserve System uses to influence the interest rate are setting A) the prime rate, open market operations, extraordinary crisis management and setting the excess reserve ratio. B) quantitative easing, market interest rate and the discount rate, as well as open market operations. C) the discount rate, open market operations, extraordinary crisis measures and setting the required reserve ratio. D) credit easing, the discount rate, setting tax rates, and setting the required reserve ratio. E) quantitative easing, open market operations, setting tax rates, and setting the required reserve ratio.

Q: In order to influence the interest rate, the Federal Reserve System can immediately adjust the A) reserves of the banking system. B) inflation level. C) unemployment rate. D) taxes that citizens must pay. E) amount the government borrows.

Q: The Federal Open Market Committee consists of A) 12 members, all of whom are the presidents of Federal Reserve Banks. B) 12 members, seven of whom are the members of the Board of Governors, four of whom are presidents of Federal Reserve Banks, and the president of the United States. C) 12 members, seven of whom are the members of the Board of Governors and five of whom are presidents of Federal Reserve Banks. D) 12 committees, all serving on the Board of Governors. E) 12 members, split evenly so that six of whom are members of the Board of Governors and six of whom are presidents of Federal Reserve Banks.

Q: The voting members of the Federal Open Market Committee consists of the A) seven Board of Governor members and the 12 Federal Reserve Bank presidents. B) seven Board of Governor members and five Federal Reserve Bank presidents. C) 12 Board of Governor members and the seven Federal Reserve Bank presidents. D) 12 Board of Governor members and the five Federal Reserve Bank presidents. E) six Board of Governor members and six Federal Reserve Bank presidents.

Q: Which of the following Federal Reserve Banks carries out the decisions of the FOMC? A) the Kansas City Federal Reserve Bank B) the New York Federal Reserve Bank C) the Dallas Federal Reserve Bank D) the San Francisco Federal Reserve Bank E) the Atlanta Federal Reserve Bank

Q: The main policy making body of the Federal Reserve System is the A) Board of Governors of the Federal Reserve System. B) Board of Presidents of the Federal Reserve Banks. C) Federal Open Market Committee. D) Board of Advisors. E) Federal Monetary Conditions Board.

Q: The Federal Open Market Committee is A) the main policy making body of the Fed. B) a seven-member board, each serving a 14-year term. C) comprised of the presidents of the 12 Federal Reserve Banks. D) another name for the Board of Governors. E) the government committee charged with determining income tax rates.

Q: The Board of Governors has A) seven members appointed to 14-year terms. B) 14 members appointed to 10-year terms. C) four members appointed to seven-year terms. D) 14 members appointed to four-year terms. E) seven members appointed for life.

Q: The Board of Governors of the Federal Reserve System has A) seven members serving for 12-year terms. B) 12 members serving for seven-year terms. C) seven members serving for seven-year terms. D) seven members serving for 14-year terms. E) seven members serving life terms.

Q: The Board of Governors of the Federal Reserve is A) the collection of the 12 presidents of the Federal Reserve Banks. B) a seven-member board, each one serving a 14-year term. C) a 14-member board, each one serving a seven-year term. D) the main policy-making body of the Fed. E) a seven-member board, each one serving a one-year term.

Q: All of the following are elements in the structure of the Fed EXCEPT the A) Federal Open Market Committee. B) Executive Council to the Governor. C) 12 Federal Reserve Banks. D) Board of Governors. E) presidents of the 12 Federal Reserve Banks.

Q: The Federal Reserve System is organized into ________ Federal Reserve districts. A) 6 B) 10 C) 12 D) 15 E) 50

Q: Who regulates the quantity of money circulating in the economy? A) the Federal Reserve B) the banking system C) the U.S. Congress D) the President of the United States E) The U.S. Congress and the President share the control.

Q: Conducting the nation's monetary policy is the duty of the A) Department of Commerce. B) U.S. Treasury department. C) Federal Reserve System. D) Federation of Banks. E) Federal Bank Supervisor.

Q: The Federal Reserve System is organized into A) one large district covering the entire United States. B) three districts, one for each of the countries in North America. C) 12 districts, dividing up the United States. D) 12 districts, dividing up the countries in North America. E) 50 districts, one per state.

Q: ________ the quantity of money in the United States. A) The State Department regulates B) The Department of Treasury regulates C) The Federal Reserve System regulates D) Commercial banks regulate E) The President of the United States regulates

Q: What is the central bank of the United States? A) There is no central bank in the United States. B) The Department of Treasury C) The Federal Reserve System D) Each state has its own central bank, which, when all taken together, constitute the central bank of the United States. E) The U.S. Mint

Q: The Fed is a central bank and as such A) does business only with the federal government. B) provides banking services to banks but not individuals. C) provides banking services to individuals and firms. D) does business with international organizations such as the United Nations. E) is where the Federal Government turns when it needs to borrow.

Q: The Federal Reserve System provides banking services to ________ because ________. A) consumers and businesses; it is a central bank with responsibilities to the entire U.S. population B) banks and businesses; it is a central bank with the primary purpose of regulating financial institutions and markets C) commercial banks; it is a central bank with the primary purpose of regulating financial institutions and markets D) no one; it is a central bank with the primary purpose of regulating financial markets E) FDIC insured banks; they are the ones that have paid their membership fees and the only ones the U.S. central bank guarantees

Q: Because the Federal Reserve System is a central bank, it provides banking services to A) businesses only. B) consumers and business. C) commercial banks. D) no one. E) the government only.

Q: As the central bank, the Federal Reserve System provides banking services to A) individuals and controls the quantity of money. B) the government and the stock market. C) foreign corporations and determines the exchange rate. D) banks and regulates financial institutions and markets. E) banks and determines how much the U.S. government will borrow.

Q: All of the following are financial institutions that accept deposits and make loans to people and businesses EXCEPT A) commercial banks. B) savings and loans. C) credit unions. D) central banks. E) savings banks.

Q: A public authority that provides banking services to commercial banks and regulates financial institutions and markets is called a A) commercial bank. B) thrift institution. C) central bank. D) money market fund. E) mint.

Q: Which of the following is a thrift institution? A) a savings and loan association B) a money market fund C) a commercial bank D) a loan institution E) the Federal Reserve

Q: Which of the following accept deposits from or sell shares to the general public? i. money market funds ii. thrift institutions iii. commercial banks A) i only B) ii only C) iii only D) Both ii and iii E) i, ii, and iii

Q: A bank has $400 in checkable deposits, $800 in savings deposits, $700 in time deposits, $900 in loans to businesses, $300 in outstanding credit card balances, $500 in government securities, $10 in currency in its vault, and $20 in deposits at the Fed. The bank's deposits that are part of M1 are equal to A) $1,900. B) $400. C) $1,210. D) $530. E) $410.

Q: A commercial bank's reserves are A) bonds issued by the U.S. government that are very safe. B) the provision of funds to businesses and individuals. C) currency in its vault plus the balance on its reserve account at a Federal Reserve Bank. D) savings and time deposits. E) its loans.