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ECON330 exam 2

Terms in this set (39)

Which of the following functions is not performed by any of the 12 regional Federal Reserve​ banks?
A.
Conducting economic research related to monetary policy
B.
Issuing new currency and withdrawing damaged currency
C.
Cheque clearing
D.
Setting interest rates payable on time deposits
D. Setting interest rates payable on time deposits
The Board of Governors of the Federal Reserve​ System:
A.
​establishes, within​ limits, reserve requirements.
B.
effectively sets the discount rate.
C.
sets margin requirements.
D.
Only A and B are correct.
E.
All of the above are correct.
E.
All of the above are correct.
Although neither​ _____ nor the​ _____ is officially set by the Federal Open Market Committee LOADING...​, 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; federal funds rate
D.
reserve​ requirements; discount rate
D.
reserve​ requirements; discount rate
The policy tools of the Fed are the following except
A.
reserve requirements.
B.
bond creation.
C.
the discount rate.
D.
open market operations.
B.
bond creation.
The Federal Reserve Bank of New York holds
______
of the assets of the Federal Reserve System.
1/4
The New York Federal Reserve Bank is so important to the Federal Reserve System because of the following except that
A.
it is where the open market desk and foreign exchange trading desk are found.
B.
it holds the largest gold deposits in the United States.
C.
some of the largest commercial banks are in New York.
D.
it serves as the location for Federal Reserve board meetings.
D.
it serves as the location for Federal Reserve board meetings.
Each of the Federal Reserve banks is considered a​ quasi-public institution because of the following statements except
A.
it is owned by the private commercial banks in its district that are members of the Federal Reserve System.
B.
it uses its staff of professonal economists to research topics related to the conduct of monetary policy.
C.
many of the directors of district banks are elected by member banks.
D.
member banks have purchased stock in their district Federal Reserve bank.
B.
it uses its staff of professonal economists to research topics related to the conduct of monetary policy.
the purchase and sale of government securities by the Federal Reserve that affect both interest rates and the amount of reserves in the banking system =
open-market operations
The twelve Federal Reserve banks are involved in monetary policy in several ways including the following except​:
A.
issuing currency.
B.
deciding which banks can obtain discount loans.
C.
being the final authority for the discount rate.
D.
voting on the purchase and sale of government securities that affect both interest rates and the amount of reserves in the banking system.
C.
being the final authority for the discount rate.
Reserve requirements are set by the​ __________ and advised upon by the​ __________.
A.
Chair of the Board of​ Governors; twelve regional Federal Reserve banks
B.
New York Federal Reserve​ Bank; member banks
C.
Board of​ Governors; FOMC
D.
Federal Advisory​ Council; open market desk
C.
Board of​ Governors; FOMC
The Board of Governors is not involved in which of the following​ activities?
A.
determining open market operations
B.
setting margin requirements
C.
approval of bank loans
D.
effectively sets the discount rate through the review and determination process
C.
approval of bank loans
monetary policy is determined by
FOMC
The interest rate on overnight loans from one bank to another is the
federal funds rate
_____are the most important policy tool the Fed has for controlling the money supply.
open market ops
The presidents of each of the district Federal Reserve banks​ (including the New York Federal Reserve​ bank) are currently not required to undergo a formal political appointment and approval process. Do you think this is​ appropriate?
A.
No. Because private banks can influence the appointment of their district Federal Reserve​ president, the benefits of eliminating this potential conflict of interest far outweigh the costs of the approval process.
B.
Yes. Since only five of the Federal Reserve bank presidents have a​ vote, they are not able to influence policy​ matters, thus a formal political appointment and approval process is unnecessary.
C.
Maybe. A formal approval process is​ lengthy, which might leave some Federal Reserve districts without​ leadership, possibly creating more problems than it solves.
C.
Maybe. A formal approval process is​ lengthy, which might leave some Federal Reserve districts without​ leadership, possibly creating more problems than it solves.
Do the​ fourteen-year nonrenewable terms for governors effectively insulate the Board of Governors from political​ pressure?
A.
No. In order to gain additional power to regulate the financial​ system, the governors need the support of Congress and the president to pass favorable legislation.
B.
Yes. Members of the Board of Governors can serve​ 14-year terms, while the president is limited to eight years if reelected.​ Thus, the longer term insulates the Board from any political pressure.
C.
Yes. The​ fourteen-year nonrenewable terms for governors effectively insulate the Board of Governors from political pressure.
D.
No. The only way to effectively insulate the Board of Governors from political pressure is to remove the term​ limit, thus allowing them to serve as many consecutive terms as they choose.
A.
No. In order to gain additional power to regulate the financial​ system, the governors need the support of Congress and the president to pass favorable legislation.
How does the Federal Reserve have a high degree of instrument​ independence?
A.
The Federal Reserve is able to set the goals of monetary policy.
B.
The Federal Reserve can choose any method it wants in order to achieve a given set of policy objectives.
C.
The Federal Reserve can contract with independent experts to choose the appropriate fiscal instruments.
D.
The Federal Reserve is not subject to the influence of Congress.
B.
The Federal Reserve can choose any method it wants in order to achieve a given set of policy objectives.
If the Federal Reserve has a specific mandate from Congress to achieve​ "maximum employment and​ low, stable​ prices," then how does the Fed have goal​ independence?
A.
The Fed is free to discuss the assigned goals with Congress.
B.
The Fed can choose any method it wants in order to achieve the assigned goal.
C.
The Fed is free to interpret exactly what these objectives mean.
D.
The Fed is able to change its goals frequently.
C.
The Fed is free to interpret exactly what these objectives mean.
What is the primary tool that Congress uses to exercise some control over the​ Fed?
A.
The threat that Congress will acquire greater control over the​ Fed's finances and budget.
B.
The threat that Congress can remove some members of the Board of Governors on a whim.
C.
The threat that Congress can withhold the​ Fed's appropriations.
D.
All of the above are correct.
A.
The threat that Congress will acquire greater control over the​ Fed's finances and budget.
While the Fed enjoys a relativity high degree of independence for a government​ agency, it feels political pressure from the president and Congress because
A.
the president can dismiss a Fed Governor at any time.
B.
Congress could limit Fed power through legislation.
C.
the Fed must go to Congress each year for operating revenues.
D.
Congress reappoint Fed Governor positions every three years.
B.
Congress could limit Fed power through legislation.
Upper A lower level of central bank independence is associated with
A.
higher inflation and no change in unemployment.
B.
lower inflation and no change in unemployment.
C.
lower inflation and lower unemployment.
D.
no change in either unemployment or inflation.
A.
higher inflation and no change in unemployment.
Proponents of a Fed under greater control of the president or Congress argue that
A.
greater control would help coordinate fiscal and monetary policies.
B.
the Fed has always used its independence successfully.
C.
it is undemocratic to have monetary policy controlled by an elite group.
D.
some sacrifices in unemployment is necessary to lower inflation.
A.
greater control would help coordinate fiscal and monetary policies.
The European System of Central Banks​ (ESCB) is similar to the Federal Reserve System in​ that:
A.
the ECB is involved in supervision and regulation of financial institutions.
B.
it is structured such that the central banks for each country have a similar role to that of the Federal Reserve banks.
C.
it is structured such that the central banks for each country control their own budgets as Federal Reserve banks do.
D.
monetary operations are centralized.
B.
it is structured such that the central banks for each country have a similar role to that of the Federal Reserve banks.
A dilemma challenging the existing structure of the European Central Bank​ (ECB) has been brought on​ by:
A.
the​ over-involvement of the ECB in the supervision and regulation of financial institutions
B.
the possibility of expanding the membership in the Eurosystem
C.
the ECB president and vice​ president's avoidance of the press
B.
the possibility of expanding the membership in the Eurosystem
Which of the following statements is​ true?
A.
The Eurosystem is the most independent central bank in the world
B.
The​ long-term goal of the European Central Bank​ (ECB) is price​ stability, which means that the goal for the Eurosystem is more clearly specified than it is for the Federal Reserve System
C.
The​ Eurosystem's charter cannot be changed by​ legislation; it can be changed only by revision of the Maastricht Treaty
D.
Only B and C are correct
E.
All of the above are correct
E.
All of the above are correct
The Maastricht Treaty
A.
established the ECB and ESCB.
B.
gives the Federal Reserve more independence than the ECB.
C.
enhances the ability of Eurozone countries to influence the ECB.
D.
subjects Federal Reserve monetary policy actions to audits by the GAO.
A.
established the ECB and ESCB.
The budget of the ECB is controlled by the
National Central Banks
Why did the Bank of England up until 1997 have a low degree of​ independence?
A.
The Bank of England was formally independent of the government until 1997.
B.
Until​ 1997, the inflation target was determined solely by the Bank of England.
C.
Until​ 1997, the power to set interest rates was determined exclusively by Her​ Majesty's Treasury.
D.
The Bank of England was not a member of the European Monetary Union until 1997.
C.
Until​ 1997, the power to set interest rates was determined exclusively by Her​ Majesty's Treasury.
In recent​ years, the tendency for central banks has been​ to:
A.
increase independence
B.
decrease independence
C.
increase reserve requirements
D.
decrease transparency
E.
Both A and C are correct
A.
increase independence
central bank independence leads to
lower inflation
By​ definition, when the Fed conducts an open market​ purchase, it​ is:
A.
decreasing the quantity of reserves.
B.
buying bonds.
C.
increasing the quantity of reserves.
D.
selling bonds.
E.
Both B and C are correct.
E.
Both B and C are correct.
Reserves​ are:
A.
deposits at the Fed plus vault cash.
B.
assets for banks.
C.
liabilities for the Fed.
D.
All of the above are correct.
E.
None of the above are correct.
D.
All of the above are correct
The interest rate charged to banks that borrow funds from the Fed is known as​ the:
A.
bond rate
B.
federal funds rate
C.
discount rate
D.
prime rate
C.
discount rate
The currency that is physically held by banks is known as
vault cash
The monetary base is affected​ by:
A.
the Federal Reserve through open market operations.
B.
the Federal Reserve through its extension of discount loans.
C.
float and Treasury deposits at the Federal Reserve.
D.
All of the above are correct.
E.
None of the above are correct.
D.
All of the above are correct.
If the required reserve ratio on checkable deposits increases to​ 20%, how much multiple deposit creation will take place when reserves are increased by​ $100? Assume that banks do not hold any excess reserves and the​ public's holdings of currency do not change.
A.
​$50.
B.
​$500.
C.
​$1,000.
D.
​$2,000.
B.$500
Predict what will happen to the money supply if there is a sharp rise in the currency ratio.
A.
The money supply increases
B.
The money supply falls
C.
The money supply stays the same
D.
The effect on the money supply is ambiguous
B.
The money supply falls
When the nonbank public decides to hold more ​currency, then we expect
A.
no change in the money supply.
B.
an unknown change in the money supply.
C.
an increase in the money supply.
D.
a fall in the money supply.
D.
a fall in the money supply.
The effects of large increases in monetary base during the Great Recession were nullified by
A.
fall in currency ratio.
B.
rise in currency ratio.
C.
drop in excess reserves ratio.
D.
rise in excess reserves ratio.
D.
rise in excess reserves ratio.
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