Question 1

The major asset of the Federal Reserve is currency outside banks and the major liability is U.S. Treasury securities.

Accepted Answer

A) True 
 B)False  False

Question 2

In the aftermath of the 2007 financial crisis,the Fed used several programs to increase liquidity,including ________.

Accepted Answer

A) expansion of the discount window 
B) setting up the Term Auction Facility 
C) lending to investment banks 
D) purchase of long-term treasury bonds 
E) All of these choices are correct. 
A) expansion of the discount window 
B) setting up the Term Auction Facility 
C) lending to investment banks 
D) purchase of long-term treasury bonds 
E) All of these choices are correct. E

Question 3

One of the objectives of the FOMC is to formulate policies to promote 100 percent employment.

Accepted Answer

A) True 
 B)False  False

Question 4

If the Fed wishes to stimulate the economy,it could
I. buy U.S. government securities.
II. raise the discount rate.
III. lower reserve requirements.

Accepted Answer

A) I and III only 
B) II and III only 
C) I and II only 
D) II only 
E) I,II,and III 
A) I and III only 
B) II and III only 
C) I and II only 
D) II only 
E) I,II,and III

Question 5

The Fed offers three types of discount window loans. ________ credit is offered to small institutions with demonstrable patterns of financing needs,________ credit is offered for short-term temporary funds outflows,and ________ credit may be offered at a higher rate to troubled institutions with more severe liquidity problems.

Accepted Answer

A) Seasonal; extended; adjustment 
B) Extended; adjustment; seasonal 
C) Adjustment; extended; seasonal 
D) Seasonal; primary; secondary 
E) Adjustment; seasonal; extended 
A) Seasonal; extended; adjustment 
B) Extended; adjustment; seasonal 
C) Adjustment; extended; seasonal 
D) Seasonal; primary; secondary 
E) Adjustment; seasonal; extended

Question 6

A bank has $770 million in checkable deposits. The bank has $85 million in reserves. The bank's required reserves are ________ and its excess reserves are ________.

Accepted Answer

A) $85 million; $0 
B) $770 million; $85 million 
C) $89 million; $21 million 
D) $685 million; $8.5 million 
E) $77 million; $8 million 
A) $85 million; $0 
B) $770 million; $85 million 
C) $89 million; $21 million 
D) $685 million; $8.5 million 
E) $77 million; $8 million

Question 7

The Fed increases bank reserves in the system by $75 million. If there are no drains,the expected change in bank deposits is

Accepted Answer

A) $82.5 million. 
B) $945 million. 
C) $750 million. 
D) $1,500 million. 
E) $655 million. 
A) $82.5 million. 
B) $945 million. 
C) $750 million. 
D) $1,500 million. 
E) $655 million.

Question 8

Countries with independent central banks are subject to political pressure to conduct monetary policies with short-term expectations.

Accepted Answer

A) True 
 B)False

Question 9

About 34 percent of all U.S. banks are members of the Federal Reserve System.

Accepted Answer

A) True 
 B)False

Question 10

Currently the Fed sets monetary policy by targeting

Accepted Answer

A) the Fed funds rate. 
B) the prime rate. 
C) the level of nonborrowed reserves. 
D) the level of borrowed reserves. 
E) the stock market. 
A) the Fed funds rate. 
B) the prime rate. 
C) the level of nonborrowed reserves. 
D) the level of borrowed reserves. 
E) the stock market.

Question 11

If the Fed is targeting interest rates and money demand increases,an appropriate policy response would be to

Accepted Answer

A) increase reserve requirements. 
B) increase the discount rate. 
C) buy U.S. Treasury securities from government bond dealers. 
D) increase government spending. 
E) None of these choices are correct. 
A) increase reserve requirements. 
B) increase the discount rate. 
C) buy U.S. Treasury securities from government bond dealers. 
D) increase government spending. 
E) None of these choices are correct.

Question 12

Ceteris paribus,if the Fed was targeting the quantity of money supplied and money demand dropped,the Fed would likely ________. If the Fed was instead targeting interest rates and money demand dropped,the Fed would likely ________.

Accepted Answer

A) increase the money supply; do nothing 
B) do nothing; decrease the money supply 
C) decrease the money supply; do nothing 
D) do nothing; increase the money supply 
E) increase the money supply; decrease the money supply 
A) increase the money supply; do nothing 
B) do nothing; decrease the money supply 
C) decrease the money supply; do nothing 
D) do nothing; increase the money supply 
E) increase the money supply; decrease the money supply

Question 13

Why did the Fed switch from increasing rates prior to 2007 to reducing interest rates in 2007 and 2008?

Accepted Answer

The growing problems in the housing mark

Question 14

Is there a trade-off between controlling domestic inflation and maintaining a sustainable pattern of international trade?

Accepted Answer

Yes. If the United States curtails money

Question 15

Suppose that oil prices hit an all-time high of $200 a barrel,driving U.S. inflation up to 7 percent per year. At the same time,weak U.S. growth and increasing foreign competition have generated unacceptably high levels of unemployment in the United States. You are the chair of the Federal Reserve. What do you suggest?

Accepted Answer

This is a very difficult scenario for th

Question 16

How do Federal Reserve Banks generate income? Do they require supplemental funding from Congress?

Accepted Answer

-Interest earned on government securitie

Question 17

If the FOMC wished to generate faster economic growth,they could issue a policy directive to the Federal Reserve Board Trading Desk to purchase U.S. government securities.

Accepted Answer

A) True 
 B)False

Question 18

A decrease in reserve requirements could lead to an

Accepted Answer

A) increase in bank lending. 
B) increase in the money supply. 
C) increase in the discount rate. 
D) increase in bank lending and an increase in the money supply. 
E) increase in bank lending and an increase in the discount rate. 
A) increase in bank lending. 
B) increase in the money supply. 
C) increase in the discount rate. 
D) increase in bank lending and an increase in the money supply. 
E) increase in bank lending and an increase in the discount rate.

Question 19

The Check 21 Act,effective in October 2004,does which of the following?

Accepted Answer

A) Allows bank customers to better take advantage of bank float 
B) Requires banks to immediately clear all customer deposits 
C) Prohibits the Fed from being involved in check clearing to prevent unfair competition with private check clearing agencies 
D) Authorizes the use of an electronic image to facilitate paperless check clearing 
E) Eliminates all fees on checking 
A) Allows bank customers to better take advantage of bank float 
B) Requires banks to immediately clear all customer deposits 
C) Prohibits the Fed from being involved in check clearing to prevent unfair competition with private check clearing agencies 
D) Authorizes the use of an electronic image to facilitate paperless check clearing 
E) Eliminates all fees on checking

Question 20

Which of the following is not a goal of monetary policy?

Accepted Answer

A) Moderate long-term interest rates. 
B) Stable interest rates. 
C) High employment. 
D) Stable prices. 
E) All of these choices are correct. 
A) Moderate long-term interest rates. 
B) Stable interest rates. 
C) High employment. 
D) Stable prices. 
E) All of these choices are correct.

Exam 4: The Federal Reserve System, monetary Policy, and Interest Rates

The major asset of the Federal Reserve is currency outside banks and the major liability is U.S. Treasury securities.

In the aftermath of the 2007 financial crisis,the Fed used several programs to increase liquidity,including ________.

One of the objectives of the FOMC is to formulate policies to promote 100 percent employment.

If the Fed wishes to stimulate the economy,it could I. buy U.S. government securities. II. raise the discount rate. III. lower reserve requirements.

A bank has $770 million in checkable deposits. The bank has $85 million in reserves. The bank's required reserves are ________ and its excess reserves are ________.

The Fed increases bank reserves in the system by $75 million. If there are no drains,the expected change in bank deposits is

Countries with independent central banks are subject to political pressure to conduct monetary policies with short-term expectations.

About 34 percent of all U.S. banks are members of the Federal Reserve System.

Currently the Fed sets monetary policy by targeting

If the Fed is targeting interest rates and money demand increases,an appropriate policy response would be to

Ceteris paribus,if the Fed was targeting the quantity of money supplied and money demand dropped,the Fed would likely ________. If the Fed was instead targeting interest rates and money demand dropped,the Fed would likely ________.

Why did the Fed switch from increasing rates prior to 2007 to reducing interest rates in 2007 and 2008?

Is there a trade-off between controlling domestic inflation and maintaining a sustainable pattern of international trade?

How do Federal Reserve Banks generate income? Do they require supplemental funding from Congress?

If the FOMC wished to generate faster economic growth,they could issue a policy directive to the Federal Reserve Board Trading Desk to purchase U.S. government securities.

A decrease in reserve requirements could lead to an

The Check 21 Act,effective in October 2004,does which of the following?

Which of the following is not a goal of monetary policy?

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

Money Markets

Bond Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters

A bank has $770 million in checkable deposits. The bank has $85 million in reserves. The bank's required reserves are and its excess reserves are .

Ceteris paribus,if the Fed was targeting the quantity of money supplied and money demand dropped,the Fed would likely . If the Fed was instead targeting interest rates and money demand dropped,the Fed would likely .