Question 1

Suppose legislation requiring the Fed to keep the inflation rate between 1.5% and 2.5% per year is passed by Congress. This law restricts the Fed's

Accepted Answer

A) instrument independence. 
B) goal independence. 
C) both A and B of the above. 
D) neither A nor B of the above. 
A) instrument independence. 
B) goal independence. 
C) both A and B of the above. 
D) neither A nor B of the above.

Question 2

Members of the Board of Governors are

Accepted Answer

A) chosen by the Federal Reserve Bank presidents. 
B) appointed by the newly elected president of the United States, as are cabinet positions. 
C) appointed by the president of the United States and confirmed by the Senate as members resign. 
D) never allowed to serve more than seven-year terms. 
A) chosen by the Federal Reserve Bank presidents. 
B) appointed by the newly elected president of the United States, as are cabinet positions. 
C) appointed by the president of the United States and confirmed by the Senate as members resign. 
D) never allowed to serve more than seven-year terms.

Question 3

Which of the following banks are required to be members of the Federal Reserve System?

Accepted Answer

A) state-chartered banks 
B) insured banks 
C) banks having over $500 million in assets 
D) none of the above 
A) state-chartered banks 
B) insured banks 
C) banks having over $500 million in assets 
D) none of the above

Question 4

The Federal Reserve banks act as liaisons between the business community and the Federal Reserve System.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following functions are not performed by any of the twelve regional Federal Reserve banks?

Accepted Answer

A) Check clearing 
B) Conducting economic research 
C) Setting interest rates payable on time deposits 
D) Issuing new currency 
A) Check clearing 
B) Conducting economic research 
C) Setting interest rates payable on time deposits 
D) Issuing new currency

Question 6

Describe the structure and responsibility for policy tools in The Federal Reserve System.

Accepted Answer

The answer of Describe the structure and responsibility for policy...

Question 7

Which Federal Reserve Bank president always has a vote in the Federal Open Market Committee?

Accepted Answer

A) Philadelphia 
B) New York 
C) Boston 
D) San Francisco 
A) Philadelphia 
B) New York 
C) Boston 
D) San Francisco

Question 8

Critics of the current system of Fed independence contend that

Accepted Answer

A) the current system is undemocratic. 
B) voters have too much say about monetary policy. 
C) the president has too much control over monetary policy on a day-to-day basis. 
D) all of the above are true. 
A) the current system is undemocratic. 
B) voters have too much say about monetary policy. 
C) the president has too much control over monetary policy on a day-to-day basis. 
D) all of the above are true.

Question 9

The theory of bureaucratic behavior suggests that the objective of a bureaucracy is to maximize

Accepted Answer

A) the public's welfare. 
B) its own welfare. 
C) profits. 
D) conflict between the executive and legislative branches of government. 
A) the public's welfare. 
B) its own welfare. 
C) profits. 
D) conflict between the executive and legislative branches of government.

Question 10

The oldest central bank, founded in 1694, is the

Accepted Answer

A) Bank of England. 
B) Deutsche Bundesbank. 
C) Bank of Japan. 
D) Federal Reserve System. 
A) Bank of England. 
B) Deutsche Bundesbank. 
C) Bank of Japan. 
D) Federal Reserve System.

Question 11

The Board of Governors sets reserve requirements.

Accepted Answer

A) True 
 B)False

Question 12

The Fed has goal independence but not instrument independence.

Accepted Answer

A) True 
 B)False

Question 13

Banks subject to reserve requirements set by the Federal Reserve System include

Accepted Answer

A) only state-chartered banks. 
B) only nationally chartered banks. 
C) only banks with less than $100 million in assets. 
D) only banks with less than $500 million in assets. 
E) all banks whether or not they are members of the Federal Reserve System. 
A) only state-chartered banks. 
B) only nationally chartered banks. 
C) only banks with less than $100 million in assets. 
D) only banks with less than $500 million in assets. 
E) all banks whether or not they are members of the Federal Reserve System.

Question 14

The many regional Federal Reserve banks resulted from a compromise between parties favoring

Accepted Answer

A) the establishment of a central bank and those opposed to its establishment. 
B) a private central bank and those favoring a government institution. 
C) the establishment of the Board of Governors in Washington, D.C., and those preferring its establishment in New York City. 
D) none of the above. 
A) the establishment of a central bank and those opposed to its establishment. 
B) a private central bank and those favoring a government institution. 
C) the establishment of the Board of Governors in Washington, D.C., and those preferring its establishment in New York City. 
D) none of the above.

Question 15

The case for Federal Reserve independence includes the idea that

Accepted Answer

A) 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. 
B) a Federal Reserve under the control of Congress or the president might make the so-called political business cycle more pronounced. 
C) the principal-agent problem is perhaps worse for the Fed than for congressmen since the former does not answer to the voters on election day. 
D) only A and B of the above. 
A) 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. 
B) a Federal Reserve under the control of Congress or the president might make the so-called political business cycle more pronounced. 
C) the principal-agent problem is perhaps worse for the Fed than for congressmen since the former does not answer to the voters on election day. 
D) only A and B of the above.

Question 16

According to the textbook authors, the Fed is

Accepted Answer

A) remarkably free of the political pressures that influence other government agencies. 
B) more responsive to the political pressures that influence other government agencies. 
C) probably somewhat constrained in its policymaking by the congressional threat to reduce Fed independence. 
D) both A and C of the above. 
A) remarkably free of the political pressures that influence other government agencies. 
B) more responsive to the political pressures that influence other government agencies. 
C) probably somewhat constrained in its policymaking by the congressional threat to reduce Fed independence. 
D) both A and C of the above.

Question 17

Which of the following are not duties of the Board of Governors of the Federal Reserve System?

Accepted Answer

A) Setting margin requirements, the fraction of the purchase price of securities that has to be paid for with cash. 
B) Setting the maximum interest rates payable on certain types of time deposits under Regulation Q. 
C) Approving the discount rate "established" by the Federal Reserve banks. 
D) Representing the United States in negotiations with foreign governments on economic matters. 
A) Setting margin requirements, the fraction of the purchase price of securities that has to be paid for with cash. 
B) Setting the maximum interest rates payable on certain types of time deposits under Regulation Q. 
C) Approving the discount rate "established" by the Federal Reserve banks. 
D) Representing the United States in negotiations with foreign governments on economic matters.

Question 18

The traditional American distrust of moneyed interests and the fear of centralized power help to explain

Accepted Answer

A) the failures of the first two experiments in central banking in the United States. 
B) the decentralized structure of the Federal Reserve System. 
C) why the Board of Governors of the Federal Reserve System is not located in New York. 
D) all of the above. 
E) only A and B of the above. 
A) the failures of the first two experiments in central banking in the United States. 
B) the decentralized structure of the Federal Reserve System. 
C) why the Board of Governors of the Federal Reserve System is not located in New York. 
D) all of the above. 
E) only A and B of the above.

Question 19

The FOMC does not actually carry out securities purchases or sales.

Accepted Answer

A) True 
 B)False

Question 20

Countries with more independent central banks have lower inflation rates, but these have come at the expense of greater output fluctuations.

Accepted Answer

A) True 
 B)False

Exam 9: Central Banks and the Federal Reserve System

Suppose legislation requiring the Fed to keep the inflation rate between 1.5% and 2.5% per year is passed by Congress. This law restricts the Fed's

Members of the Board of Governors are

Which of the following banks are required to be members of the Federal Reserve System?

The Federal Reserve banks act as liaisons between the business community and the Federal Reserve System.

Which of the following functions are not performed by any of the twelve regional Federal Reserve banks?

Describe the structure and responsibility for policy tools in The Federal Reserve System.

Which Federal Reserve Bank president always has a vote in the Federal Open Market Committee?

Critics of the current system of Fed independence contend that

The theory of bureaucratic behavior suggests that the objective of a bureaucracy is to maximize

The oldest central bank, founded in 1694, is the

The Board of Governors sets reserve requirements.

The Fed has goal independence but not instrument independence.

Banks subject to reserve requirements set by the Federal Reserve System include

The many regional Federal Reserve banks resulted from a compromise between parties favoring

The case for Federal Reserve independence includes the idea that

According to the textbook authors, the Fed is

Which of the following are not duties of the Board of Governors of the Federal Reserve System?

The traditional American distrust of moneyed interests and the fear of centralized power help to explain

The FOMC does not actually carry out securities purchases or sales.

Countries with more independent central banks have lower inflation rates, but these have come at the expense of greater output fluctuations.

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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