Subject to the approval of the Board of Governors, the decision of choosing the president of a district Federal Reserve Bank is made by

Subject to the approval of the Board of Governors, the decision of choosing the president of a district Federal Reserve Bank is made by




A) all nine district bank directors.
B) the six district bank directors elected by the member banks.
C) three district bank directors who are professional bankers.
D) district bank directors who are not professional bankers.
E) class A and class B directors.



Answer: D

The teal book is the Fed research document containing

The teal book is the Fed research document containing




A) the forecast of national economic variables for the next three years.
B) forecasts of the money aggregates conditional on different monetary policy stances.
C) information on the state of the economy in each Federal Reserve district.
D) both A and B.
E) A, B and C.



Answer: D

Although neither ________ nor the ________ are officially set by the Federal Open Market Committee, decisions concerning these policy tools are effectively made by the committee.

Although neither ________ nor the ________ are officially set by the Federal Open Market Committee, decisions concerning these policy tools are effectively made by the committee.




A) margin requirements; discount rate
B) margin requirements; federal funds rate
C) reserve requirements; discount rate
D) reserve requirements; federal funds rate



Answer: C

The majority of members of the Federal Open Market Committee are

The majority of members of the Federal Open Market Committee are




A) Federal Reserve Bank presidents.
B) members of the Federal Advisory Council.
C) presidents of member banks.
D) the seven Federal Reserve governors.



Answer: D

The Federal Open Market Committee consists of the

The Federal Open Market Committee consists of the




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



Answer: C

Which of the followings is not a current duty of the Board of Governors of the Federal Reserve System?

Which of the followings is not a current duty of the Board of Governors of the Federal Reserve System?




A) Setting margin requirements, the fraction of the purchase price of the 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.



Answer: B

Which of the followings is a duty of the Board of Governors of the Federal Reserve System?

Which of the followings is a duty of the Board of Governors of the Federal Reserve System?




A) Setting margin requirements, the fraction of the purchase price of the 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) Regulating credit with the approval of the president under the Credit Control Act of 1969.
D) All governors advise the president of the United States on economic policy.



Answer: A

Which of the followings is a duty of the Board of Governors of the Federal Reserve System?

Which of the followings is a duty of the Board of Governors of the Federal Reserve System?




A) Setting margin requirements, the fraction of the purchase price of the 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) Regulating credit with the approval of the president under the Credit Control Act of 1969.
D) All governors advise the president of the United States on economic policy.



Answer: A

Each governor on the Board of Governors can serve

Each governor on the Board of Governors can serve




A) only one nonrenewable fourteen-year term.
B) one full nonrenewable fourteen-year term plus part of another term.
C) only one nonrenewable eight-year term.
D) one full nonrenewable eight-year term plus part of another term.



Answer: B

Members of the Board of Governors are

Members of the Board of Governors are




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.
D) never allowed to serve more than 7-year terms.



Answer: C

The Depository Institutions Deregulation and Monetary Control Act of 1980

The Depository Institutions Deregulation and Monetary Control Act of 1980




A) established higher reserve requirements for nonmember than for member banks.
B) established higher reserve requirements for member than for nonmember banks.
C) abolished reserve requirements.
D) established uniform reserve requirements for all banks.



Answer: D

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

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




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



Answer: D

The Fed's support of the Depository Institutions Deregulation and Monetary Control Act of 1980 stemmed in part from its

The Fed's support of the Depository Institutions Deregulation and Monetary Control Act of 1980 stemmed in part from its




A) concern over declining Fed membership.
B) belief that all banking regulations should be eliminated.
C) belief that interest rate ceilings were too high.
D) belief that depositors had to become more knowledgeable of banking operations.



Answer: A

Prior to 1980, member banks left the Federal Reserve System due to

Prior to 1980, member banks left the Federal Reserve System due to




A) the high cost of discount loans.
B) the high cost of required reserves.
C) a desire to avoid interest rate regulations.
D) a desire to avoid credit controls.



Answer: B

All ________ are required to be members of the Fed.

All ________ are required to be members of the Fed.




A) state chartered banks
B) nationally chartered banks
C) banks with assets less than $100 million
D) banks with assets less than $500 million



Answer: B

The nine directors of the Federal Reserve Banks are split into three categories: ________ are professional bankers, ________ are leaders from industry, and ________ are to represent the public interest and are not allowed to be officers, employees, or stockholders of banks.

The nine directors of the Federal Reserve Banks are split into three categories: ________ are professional bankers, ________ are leaders from industry, and ________ are to represent the public interest and are not allowed to be officers, employees, or stockholders of banks.




A) 5; 2; 2
B) 2; 5; 2
C) 4; 2; 3
D) 3; 3; 3




Answer: D

The Federal Reserve Banks are ________ institutions since they are owned by the ________.

The Federal Reserve Banks are ________ institutions since they are owned by the ________.




A) quasi-public; private commercial banks in the district where the Reserve Bank is located
B) public; private commercial banks in the district where the Reserve Bank is located
C) quasi-public; Board of Governors
D) public; Board of Governors



Answer: A

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




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.



Answer: D

The public's fear of centralized power and distrust of moneyed interests led to the demise of the first two experiments in central banking, otherwise known as

The public's fear of centralized power and distrust of moneyed interests led to the demise of the first two experiments in central banking, otherwise known as




A) the First Bank of the United States and the Second Bank of the United States.
B) the First Bank of the United States and the Central Bank of the United States.
C) the First Central Bank of the United States and the Second Central Bank of the United States.
D) the First Bank of North America and the Second Bank of North America.



Answer: A

The Second Bank of the United States

The Second Bank of the United States




A) was disbanded in 1811 when its charter was not renewed.
B) had its charter renewal vetoed in 1832.
C) is considered to be the primary cause of the bank panic of 1907.
D) None of the above.


Answer: B

The First Bank of the United States

The First Bank of the United States



A) was disbanded in 1811 when its charter was not renewed.
B) had its charter renewal vetoed in 1832.
C) was fundamental in helping the Federal Government finance the War of 1812.
D) None of the above.



Answer: A

The M2 money supply is represented by

The M2 money supply is represented by




A) M2 = (1+c+t+mm)/(rr+e+c) × MB.
B) M2 = (1+c+t+mm)/(rr+e+c) × 1/MB
C) MB = (1+c+t+mm)/(rr+e+c) × M2.
D) MB = (1+c+t+mm)/(rr+e+c) × 1/M2



Answer: A

The increase in the currency ratio during World War II was due to

The increase in the currency ratio during World War II was due to




A) bank panics.
B) a drop in the rate of interest paid on checking deposits.
C) the spread of ATMs.
D) high taxes and illegal activities.



Answer: D

Everything else held constant, an increase in the interest rate paid on checkable deposits will cause ________ in the amount of checkable deposits held relative to currency holdings and ________ in the currency ratio.

Everything else held constant, an increase in the interest rate paid on checkable deposits will cause ________ in the amount of checkable deposits held relative to currency holdings and ________ in the currency ratio.




A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease



Answer: B

Factors causing an increase in currency holdings include

Factors causing an increase in currency holdings include




A) an increase in the interest rates paid on checkable deposits.
B) an increase in the cost of acquiring currency.
C) a decrease in bank panics.
D) an increase in illegal activity.




Answer: D

The M2 money multiplier is

The M2 money multiplier is




A) negatively related to high-powered money.
B) positively related to the time deposit ratio.
C) positively related to the required reserve ratio.
D) positively related to the excess reserves ratio.



Answer: B

Suppose the Bank of China permanently decreases its purchases of U.S. government bonds and, instead, holds more dollars on deposit at the Federal Reserve. Everything else held constant, a open market ________ would be the appropriate monetary policy action for the Fed to take to offset the expected ________ in the monetary base in the United States.

Suppose the Bank of China permanently decreases its purchases of U.S. government bonds and, instead, holds more dollars on deposit at the Federal Reserve. Everything else held constant, a open market ________ would be the appropriate monetary policy action for the Fed to take to offset the expected ________ in the monetary base in the United States.




A) purchase; decrease
B) purchase; increase
C) sale; decrease
D) sale; increase



Answer: A

Suppose, while cleaning out its closets, a worker at the Federal Reserve bank branch in Memphis discovers a painting of Elvis (medium: acrylic on velvet) that used to grace the walls of the conference room. Suppose further that, at a public auction, the bank sells the painting for $19.95. This sale will cause ________ in the monetary base, everything else held constant.

Suppose, while cleaning out its closets, a worker at the Federal Reserve bank branch in Memphis discovers a painting of Elvis (medium: acrylic on velvet) that used to grace the walls of the conference room. Suppose further that, at a public auction, the bank sells the painting for $19.95. This sale will cause ________ in the monetary base, everything else held constant.




A) an increase of $19.95
B) an increase of more than $19.95
C) a decrease of $19.95
D) a decrease of more than $19.95



Answer: C

U.S. Treasury deposits at the Fed are ________ for the Fed but ________ for the Treasury. Thus an increase in U.S. Treasury deposits ________ the monetary base.

U.S. Treasury deposits at the Fed are ________ for the Fed but ________ for the Treasury. Thus an increase in U.S. Treasury deposits ________ the monetary base.




A) a liability; an asset; increases
B) a liability; an asset; decreases
C) an asset; a liability; increases
D) an asset; a liability; decreases



Answer: B

An increase in Treasury deposits at the Fed causes

An increase in Treasury deposits at the Fed causes




A) the monetary base to increase.
B) the monetary base to decrease.
C) Fed assets to increase but has no effect on the monetary base.
D) Fed assets to decrease but has no effect on the monetary base.



Answer: B

When the Treasury acquires gold or SDRs, it issues certificates to the ________, which are a claim on the gold or SDRs, and in turn is credited with deposit balances at the ________.

When the Treasury acquires gold or SDRs, it issues certificates to the ________, which are a claim on the gold or SDRs, and in turn is credited with deposit balances at the ________.




A) Federal Reserve System; Fed
B) Federal Reserve System; IMF
C) International Monetary Fund; Fed
D) International Monetary Fund; IMF



Answer: A

Special Drawing Rights (SDRs) are issued to governments by the ________ to settle international debts and have replaced ________ in international transactions.

Special Drawing Rights (SDRs) are issued to governments by the ________ to settle international debts and have replaced ________ in international transactions.




A) Federal Reserve System; gold
B) Federal Reserve System; dollars
C) International Monetary Fund; gold
D) International Monetary Fund; dollars



Answer: C

Which is the most important category of Fed assets?

Which is the most important category of Fed assets?




A) Securities
B) Discount loans
C) Gold and SDR certificates
D) Cash items in the process of collection



Answer: A

In the early 1930s, the currency ratio rose, as did the level of excess reserves. Money supply analysis predicts that, everything else held constant, the money supply should have

In the early 1930s, the currency ratio rose, as did the level of excess reserves. Money supply analysis predicts that, everything else held constant, the money supply should have




A) risen.
B) fallen.
C) remain unchanged.
D) either risen, fallen, or remain unchanged.



Answer: B

The money multiplier is

The money multiplier is




A) negatively related to high-powered money.
B) positively related to the excess reserves ratio.
C) negatively related to the required reserve ratio.
D) positively related to holdings of excess reserves.



Answer: C

Everything else held constant, a decrease in the currency-checkable deposit ratio will mean

Everything else held constant, a decrease in the currency-checkable deposit ratio will mean




A) an increase in currency in circulation and an increase in the money supply.
B) an increase in money supply.
C) a decrease in the money supply.
D) an increase in currency in circulation but no change in the money supply.



Answer: B

Everything else held constant, an increase in the currency-checkable deposit ratio will mean

Everything else held constant, an increase in the currency-checkable deposit ratio will mean





A) an increase in currency in circulation and an increase in the money supply.
B) an increase in money supply but no change in reserves.
C) a decrease in the money supply.
D) an increase in currency in circulation but no change in the money supply.




Answer: C

The formula for the M1 money multiplier is

The formula for the M1 money multiplier is





A) m = (1 + c)/(rr + e + c).
B) M = 1/(rr + e + c).
C) M = (1 + c)/(rr + e + c).
D) m = [1/(rr + e + c)] × MB.



Answer: A

Models describing the determination of the money supply and the Fed's role in this process normally focus on ________ rather than ________, since Fed actions have a more predictable effect on the former.

Models describing the determination of the money supply and the Fed's role in this process normally focus on ________ rather than ________, since Fed actions have a more predictable effect on the former.




A) reserves; the monetary base
B) reserves; high-powered money
C) the monetary base; high-powered money
D) the monetary base; reserves



Answer: D

Decisions by depositors to increase their holdings of ________, or of banks to hold ________ will result in a smaller expansion of deposits than the simple model predicts.

Decisions by depositors to increase their holdings of ________, or of banks to hold ________ will result in a smaller expansion of deposits than the simple model predicts.




A) deposits; required reserves
B) deposits; excess reserves
C) currency; required reserves
D) currency; excess reserves



Answer: D

The simple deposit expansion model, an expansion in checkable deposits of $1,000 when the required reserve ratio is equal to 10 percent implies that the Fed

The simple deposit expansion model, an expansion in checkable deposits of $1,000 when the required reserve ratio is equal to 10 percent implies that the Fed




A) sold $1,000 in government bonds.
B) sold $100 in government bonds.
C) purchased $1000 in government bonds.
D) purchased $100 in government bonds




Answer: D

In the simple deposit expansion model, an expansion in checkable deposits of $1,000 when the required reserve ratio is equal to 20 percent implies that the Fed

In the simple deposit expansion model, an expansion in checkable deposits of $1,000 when the required reserve ratio is equal to 20 percent implies that the Fed




A) sold $200 in government bonds.
B) sold $500 in government bonds.
C) purchased $200 in government bonds.
D) purchased $500 in government bonds.



Answer: C

The simple deposit multiplier can be expressed as the ratio of the

The simple deposit multiplier can be expressed as the ratio of the




A) change in reserves in the banking system divided by the change in deposits.
B) change in deposits divided by the change in reserves in the banking system.
C) required reserve ratio divided by the change in reserves in the banking system.
D) change in deposits divided by the required reserve ratio.



Answer: B

The simple model of multiple deposit creation in which banks do not hold excess reserves, the increase in checkable deposits equals the product of the change in reserves and the

The simple model of multiple deposit creation in which banks do not hold excess reserves, the increase in checkable deposits equals the product of the change in reserves and the




A) reciprocal of the excess reserve ratio.
B) simple deposit expansion multiplier.
C) reciprocal of the simple deposit multiplier.
D) discount rate.



Answer: B

In the simple deposit expansion model, if the Fed extends a $100 discount loan to a bank that previously had no excess reserves, deposits in the banking system can potentially increase by

In the simple deposit expansion model, if the Fed extends a $100 discount loan to a bank that previously had no excess reserves, deposits in the banking system can potentially increase by





A) $10.
B) $100.
C) $100 times the reciprocal of the required reserve ratio.
D) $100 times the required reserve ratio.




Answer: C

In the simple deposit expansion model, if the Fed extends a $100 discount loan to a bank that previously had no excess reserves, the bank can now increase its loans by

In the simple deposit expansion model, if the Fed extends a $100 discount loan to a bank that previously had no excess reserves, the bank can now increase its loans by




A) $10.
B) $100.
C) $100 times the reciprocal of the required reserve ratio.
D) $100 times the required reserve ratio.



Answer: B

In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, deposits in the banking system can potentially increase by

In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, deposits in the banking system can potentially increase by




A) $10.
B) $100.
C) $100 times the reciprocal of the required reserve ratio.
D) $100 times the required reserve ratio.



Answer: C

In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, the bank can now increase its loans by

In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, the bank can now increase its loans by




A) $10.
B) $100.
C) $100 times the reciprocal of the required reserve ratio.
D) $100 times the required reserve ratio.



Answer: B

Suppose your payroll check is directly deposited to your checking account. Everything else held constant, total reserves in the banking system ________ and the monetary base ________.

Suppose your payroll check is directly deposited to your checking account. Everything else held constant, total reserves in the banking system ________ and the monetary base ________.




A) remain unchanged; remains unchanged
B) remain unchanged; increases
C) decrease; increases
D) decrease; decreases



Answer: A

Suppose a person cashes his payroll check and holds all the funds in the form of currency. Everything else held constant, total reserves in the banking system ________ and the monetary base ________.

Suppose a person cashes his payroll check and holds all the funds in the form of currency. Everything else held constant, total reserves in the banking system ________ and the monetary base ________.




A) remain unchanged; increases
B) decrease; increases
C) decrease; remains unchanged
D) decrease; decreases



Answer: C

The monetary base declines when

The monetary base declines when




A) the Fed extends discount loans.
B) Treasury deposits at the Fed decrease.
C) float increases.
D) the Fed sells securities.



Answer: D

If the Fed decides to reduce bank reserves, it can

If the Fed decides to reduce bank reserves, it can




A) purchase government bonds.
B) extend discount loans to banks.
C) sell government bonds.
D) print more currency.


Answer: C