Question 1

Federal Reserve monetary policy decisions must be approved by the Secretary of the Treasury before they may be implemented.

Accepted Answer

A) True 
 B)False  False

Question 2

The financial panic of 1907 resulted in such widespread bank failures and substantial losses to depositors that the American public finally became convinced that

Accepted Answer

A) the First Bank of the United States had failed to serve as a lender of last resort. 
B) the Second Bank of the United States had failed to serve as a lender of last resort. 
C) the Federal Reserve System had failed to serve as a lender of last resort. 
D) a central bank was needed to prevent future panics. 
A) the First Bank of the United States had failed to serve as a lender of last resort. 
B) the Second Bank of the United States had failed to serve as a lender of last resort. 
C) the Federal Reserve System had failed to serve as a lender of last resort. 
D) a central bank was needed to prevent future panics. D

Question 3

The strongest argument for an independent Federal Reserve rests on the view that subjecting the Fed to more political pressures would impart

Accepted Answer

A) an inflationary bias to monetary policy. 
B) a deflationary bias to monetary policy. 
C) a disinflationary bias to monetary policy. 
D) a countercyclical bias to monetary policy. 
A) an inflationary bias to monetary policy. 
B) a deflationary bias to monetary policy. 
C) a disinflationary bias to monetary policy. 
D) a countercyclical bias to monetary policy. A

Question 4

Critics of the current system of Fed independence contend that the president has too much control over monetary policy on a day-to-day basis.

Accepted Answer

A) True 
 B)False

Question 5

Factors that provide the Federal Reserve with a high degree of independence include

Accepted Answer

A) 14-year terms for members of the Board of Governors. 
B) a four-year term for the chairman of the Board of Governors that is not coincident with the president's term of office. 
C) constitutional independence from Congress and the president. 
D) all of the above. 
E) only A and B of the above. 
A) 14-year terms for members of the Board of Governors. 
B) a four-year term for the chairman of the Board of Governors that is not coincident with the president's term of office. 
C) constitutional independence from Congress and the president. 
D) all of the above. 
E) only A and B of the above.

Question 6

Federal Reserve independence is thought to

Accepted Answer

A) introduce a short-term bias to monetary policymaking. 
B) lead to better fiscal and monetary policy coordination. 
C) introduce longer-run considerations to monetary policymaking. 
D) do both A and B of the above. 
A) introduce a short-term bias to monetary policymaking. 
B) lead to better fiscal and monetary policy coordination. 
C) introduce longer-run considerations to monetary policymaking. 
D) do both A and B of the above.

Question 7

The Federal Reserve entity that determines monetary policy strategy is the

Accepted Answer

A) Board of Governors. 
B) Federal Open Market Committee. 
C) Chairman of the Board of Governors. 
D) Shadow Open Market Committee. 
A) Board of Governors. 
B) Federal Open Market Committee. 
C) Chairman of the Board of Governors. 
D) Shadow Open Market Committee.

Question 8

Which of the following is an element of the Federal Reserve System?

Accepted Answer

A) The Federal Reserve banks 
B) The Board of Governors 
C) The FDIC 
D) All of the above 
E) Only A and B of the above 
A) The Federal Reserve banks 
B) The Board of Governors 
C) The FDIC 
D) All of the above 
E) Only A and B of the above

Question 9

The theory of bureaucratic behavior when applied to the Fed helps to explain why the Fed

Accepted Answer

A) resists so vigorously congressional attempts to limit the central bank's autonomy. 
B) is secretive about the conduct of future monetary policy. 
C) sought less control over banks in the 1980s. 
D) all of the above. 
E) only A and B of the above. 
A) resists so vigorously congressional attempts to limit the central bank's autonomy. 
B) is secretive about the conduct of future monetary policy. 
C) sought less control over banks in the 1980s. 
D) all of the above. 
E) only A and B of the above.

Question 10

What factors limit the independence of the Federal Reserve?

Accepted Answer

The answer of What factors limit the independence of the...

Question 11

According to the theory of bureaucratic behavior, the objective of bureaucracy is

Accepted Answer

A) to maximize its own welfare, meaning that it seeks additional power and prestige. 
B) to maximize consumers' surplus, meaning that it seeks additional regulatory powers. 
C) to protect the industry it regulates, meaning that it seeks additional regulatory powers. 
D) none of the above. 
A) to maximize its own welfare, meaning that it seeks additional power and prestige. 
B) to maximize consumers' surplus, meaning that it seeks additional regulatory powers. 
C) to protect the industry it regulates, meaning that it seeks additional regulatory powers. 
D) none of the above.

Question 12

Rapid money supply growth and uncontrollable inflation were among the factors which motivated the creation of the Federal Reserve System.

Accepted Answer

A) True 
 B)False

Question 13

The unusual structure of the Federal Reserve System is perhaps best explained by

Accepted Answer

A) Americans' fear of centralized power. 
B) the traditional American distrust of moneyed interests. 
C) Americans' desire to remove control of the money supply from the U.S. Treasury. 
D) all of the above. 
E) only A and B of the above. 
A) Americans' fear of centralized power. 
B) the traditional American distrust of moneyed interests. 
C) Americans' desire to remove control of the money supply from the U.S. Treasury. 
D) all of the above. 
E) only A and B of the above.

Question 14

Monetary policy is set by the Board of Governors.

Accepted Answer

A) True 
 B)False

Question 15

Politicians in a democratic society may be shortsighted because of their desire to win reelection; thus, the political process can

Accepted Answer

A) impart an inflationary bias to monetary policy. 
B) impart a deflationary bias to monetary policy. 
C) generate a political business cycle in which, just before an election, expansionary policies are pursued to lower unemployment and interest rates. 
D) cause both A and C of the above to occur. 
A) impart an inflationary bias to monetary policy. 
B) impart a deflationary bias to monetary policy. 
C) generate a political business cycle in which, just before an election, expansionary policies are pursued to lower unemployment and interest rates. 
D) cause both A and C of the above to occur.

Question 16

The case for Federal Reserve independence includes the idea that

Accepted Answer

A) political pressure would impart an inflationary bias to monetary policy. 
B) a politically insulated Fed would be more concerned with long-run objectives and thus be a defender of a sound dollar and a stable price level. 
C) a Federal Reserve under the control of Congress or the president might make the so-called political business cycle more pronounced. 
D) all of the above. 
A) political pressure would impart an inflationary bias to monetary policy. 
B) a politically insulated Fed would be more concerned with long-run objectives and thus be a defender of a sound dollar and a stable price level. 
C) a Federal Reserve under the control of Congress or the president might make the so-called political business cycle more pronounced. 
D) all of the above.

Question 17

Bank panics in 1819, 1837, 1857, 1873, 1884, 1893, and 1907 convinced many that

Accepted Answer

A) the Federal Reserve needed greater control over the banking system. 
B) the Federal Reserve needed greater authority to deal with problem banks. 
C) a central bank was needed to prevent future financial panics. 
D) both A and B of the above. 
A) the Federal Reserve needed greater control over the banking system. 
B) the Federal Reserve needed greater authority to deal with problem banks. 
C) a central bank was needed to prevent future financial panics. 
D) both A and B of the above.

Question 18

The Washington, D.C. Fed bank, with over 30 percent of the system's assets, is the most important Federal Reserve Bank.

Accepted Answer

A) True 
 B)False

Question 19

The FOMC is an element of the Federal Reserve System.

Accepted Answer

A) True 
 B)False

Question 20

The Board of Governors

Accepted Answer

A) establishes, within limits, reserve requirements. 
B) effectively sets the discount rate. 
C) sets margin requirements. 
D) does all of the above. 
E) does only A and B of the above. 
A) establishes, within limits, reserve requirements. 
B) effectively sets the discount rate. 
C) sets margin requirements. 
D) does all of the above. 
E) does only A and B of the above.

Exam 9: Central Banks and the Federal Reserve System

Federal Reserve monetary policy decisions must be approved by the Secretary of the Treasury before they may be implemented.

The financial panic of 1907 resulted in such widespread bank failures and substantial losses to depositors that the American public finally became convinced that

The strongest argument for an independent Federal Reserve rests on the view that subjecting the Fed to more political pressures would impart

Critics of the current system of Fed independence contend that the president has too much control over monetary policy on a day-to-day basis.

Factors that provide the Federal Reserve with a high degree of independence include

Federal Reserve independence is thought to

The Federal Reserve entity that determines monetary policy strategy is the

Which of the following is an element of the Federal Reserve System?

The theory of bureaucratic behavior when applied to the Fed helps to explain why the Fed

What factors limit the independence of the Federal Reserve?

According to the theory of bureaucratic behavior, the objective of bureaucracy is

Rapid money supply growth and uncontrollable inflation were among the factors which motivated the creation of the Federal Reserve System.

The unusual structure of the Federal Reserve System is perhaps best explained by

Monetary policy is set by the Board of Governors.

Politicians in a democratic society may be shortsighted because of their desire to win reelection; thus, the political process can

The case for Federal Reserve independence includes the idea that

Bank panics in 1819, 1837, 1857, 1873, 1884, 1893, and 1907 convinced many that

The Washington, D.C. Fed bank, with over 30 percent of the system's assets, is the most important Federal Reserve Bank.

The FOMC is an element of the Federal Reserve System.

The Board of Governors

Why Study Financial Markets and Institutions

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation

Why Do Interest Rates Change

How Do Risk and Term Structure Affect Interest Rates

Are Financial Markets Efficient

Why Do Financial Institutions Exist

Why Do Financial Crises Occur and Why Are They so Damaging to the Economy

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging With Financial Derivatives

Savings Associations and Credit Unions

Finance Companies

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