Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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 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.

Question 4

Former Board of Governors chairman Paul Volcker reportedly once said that the Federal Reserve is free to pursue any policy it desires, as long as it convinces Congress that such a policy is reasonable. What does Volcker's comment suggest about the independence of the Fed? Explain.

Accepted Answer

The answer of Former Board of Governors chairman Paul Volcker...

Question 5

Cross-country evidence suggests that an increase in central bank independence results in a ________ inflation rate and ________ unemployment.

Accepted Answer

A) lower; higher 
B) lower; no worse 
C) higher; lower 
D) higher; higher 
A) lower; higher 
B) lower; no worse 
C) higher; lower 
D) higher; higher

Question 6

The Federal Open Market Committee consists of

Accepted Answer

A) the five senior members of the seven-member Board of Governors. 
B) the seven members of the Board of Governors and seven presidents of the regional Fed banks. 
C) the seven members of the Board of Governors and five presidents of the regional Fed banks. 
D) the twelve regional Fed bank presidents and the chairman of the Board of Governors. 
A) the five senior members of the seven-member Board of Governors. 
B) the seven members of the Board of Governors and seven presidents of the regional Fed banks. 
C) the seven members of the Board of Governors and five presidents of the regional Fed banks. 
D) the twelve regional Fed bank presidents and the chairman of the Board of Governors.

Question 7

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

Accepted Answer

A) is supportive of 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) is willing to take on powerful groups that may threaten its autonomy. 
A) is supportive of 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) is willing to take on powerful groups that may threaten its autonomy.

Question 8

Each member of the seven-member Board is appointed by the president and confirmed by the Senate to serve 14-year terms.

Accepted Answer

A) True 
 B)False

Question 9

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.

Question 10

The unusual structure of the Federal Reserve System is best explained by Americans' fear of centralized power.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following are true statements?

Accepted Answer

A) The FOMC usually meets every six weeks to set monetary policy. 
B) The FOMC issues directives to the trading desk at the New York Fed. 
C) Designers of the Federal Reserve Act did not envision the use of open market operations as a monetary policy tool. 
D) All of the above are true statements. 
E) Only A and B of the above are true statements. 
A) The FOMC usually meets every six weeks to set monetary policy. 
B) The FOMC issues directives to the trading desk at the New York Fed. 
C) Designers of the Federal Reserve Act did not envision the use of open market operations as a monetary policy tool. 
D) All of the above are true statements. 
E) Only A and B of the above are true statements.

Question 12

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 13

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.

Question 14

The ________ of the Board of Governors is the spokesperson for the Fed.

Accepted Answer

A) chairman 
B) president 
C) either of the above can be the spokesperson 
D) neither of the above 
A) chairman 
B) president 
C) either of the above can be the spokesperson 
D) neither of the above

Question 15

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 16

The three largest Federal Reserve banks in terms of assets are those of New York, Chicago, and

Accepted Answer

A) Atlanta. 
B) Los Angeles. 
C) Baltimore. 
D) San Francisco. 
A) Atlanta. 
B) Los Angeles. 
C) Baltimore. 
D) San Francisco.

Question 17

Which of the following are true statements?

Accepted Answer

A) The FOMC usually meets every six weeks to set monetary policy. 
B) The FOMC issues directives to the trading desk at the New York Fed. 
C) Designers of the Federal Reserve Act did not envision the use of discount lending as a monetary policy tool. 
D) All of the above are true statements. 
E) Only A and B of the above are true statements. 
A) The FOMC usually meets every six weeks to set monetary policy. 
B) The FOMC issues directives to the trading desk at the New York Fed. 
C) Designers of the Federal Reserve Act did not envision the use of discount lending as a monetary policy tool. 
D) All of the above are true statements. 
E) Only A and B of the above are true statements.

Question 18

According to the textbook authors,

Accepted Answer

A) the Fed appears to be remarkably free of the political pressures that influence other government agencies. 
B) since the president can protect the Fed from Congress, the Fed may be responsive to the president's policy preferences. 
C) the Fed appears to be more responsive to the political pressures that influence other government agencies. 
D) both A and B of the above. 
E) both B and C of the above. 
A) the Fed appears to be remarkably free of the political pressures that influence other government agencies. 
B) since the president can protect the Fed from Congress, the Fed may be responsive to the president's policy preferences. 
C) the Fed appears to be more responsive to the political pressures that influence other government agencies. 
D) both A and B of the above. 
E) both B and C of the above.

Question 19

Advocates of Fed independence fear that subjecting the Fed to direct presidential or congressional control would

Accepted Answer

A) impart an inflationary bias to monetary policy. 
B) force monetary authorities to sacrifice the long-run objective of price stability. 
C) make the so-called political business cycle less pronounced. 
D) do all of the above. 
E) do only A and B of the above. 
A) impart an inflationary bias to monetary policy. 
B) force monetary authorities to sacrifice the long-run objective of price stability. 
C) make the so-called political business cycle less pronounced. 
D) do all of the above. 
E) do only A and B of the above.

Question 20

In November 2007, the Fed announced major enhancements to its communication strategy. Which of the following was a part of the changes?

Accepted Answer

A) The forecast horizon for the FOMC's projections was extended from two calendar years to three. 
B) The committee publishes FOMC projections four times a year instead of twice a year. 
C) The release would include a narrative of the forces shaping the outlook and risks to that outlook. 
D) All of the above were proposed changes. 
A) The forecast horizon for the FOMC's projections was extended from two calendar years to three. 
B) The committee publishes FOMC projections four times a year instead of twice a year. 
C) The release would include a narrative of the forces shaping the outlook and risks to that outlook. 
D) All of the above were proposed changes.

Exam 9: Central Banks and 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?

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

Former Board of Governors chairman Paul Volcker reportedly once said that the Federal Reserve is free to pursue any policy it desires, as long as it convinces Congress that such a policy is reasonable. What does Volcker's comment suggest about the independence of the Fed? Explain.

Cross-country evidence suggests that an increase in central bank independence results in a ________ inflation rate and ________ unemployment.

The Federal Open Market Committee consists of

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

Each member of the seven-member Board is appointed by the president and confirmed by the Senate to serve 14-year terms.

The Board of Governors

The unusual structure of the Federal Reserve System is best explained by Americans' fear of centralized power.

Which of the following are true statements?

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.

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 ________ of the Board of Governors is the spokesperson for the Fed.

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

The three largest Federal Reserve banks in terms of assets are those of New York, Chicago, and

Which of the following are true statements?

According to the textbook authors,

Advocates of Fed independence fear that subjecting the Fed to direct presidential or congressional control would

In November 2007, the Fed announced major enhancements to its communication strategy. Which of the following was a part of the changes?

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

Filters

Cross-country evidence suggests that an increase in central bank independence results in a inflation rate and unemployment.