Econ Test 3 -13
Questions and Answers
- 1.
1. The Federal Reserve System is the
- A.
Federal government agency that collects taxes and spends these receipts on tanks, bridges, government employees' salaries, etc.
- B.
Company that delivers packages to your front door.
- C.
Central bank of the United States.
- D.
Federal government agency that collects and disseminates all the economic data that economists are interested in.
Correct Answer
C. Central bank of the United States.Explanation
The correct answer is the central bank of the United States. The Federal Reserve System, commonly referred to as the Fed, is responsible for conducting monetary policy, regulating and supervising banks, and maintaining the stability of the financial system in the United States. It does not collect taxes or deliver packages, but rather focuses on managing the country's money supply, controlling inflation, and promoting economic stability.Rate this question:
-
- 2.
2. The Federal Reserve System began operations in
- A.
1834.
- B.
1896
- C.
1914
- D.
1935.
Correct Answer
C. 1914Explanation
The correct answer is 1914. The Federal Reserve System, also known as the Fed, is the central banking system of the United States. It was established in 1913 with the passage of the Federal Reserve Act, and it began operations the following year in 1914. The Fed's main responsibilities include conducting monetary policy, supervising and regulating banks, and maintaining the stability of the financial system.Rate this question:
-
- 3.
3. The Board of Governors of the Federal Reserve is comprised of
- A.
Seven persons, each appointed to a seven-year term.
- B.
Seven persons, each appointed to a fourteen-year term.
- C.
Fourteen persons, each appointed to a seven-year term.
- D.
Twelve persons, each appointed to a seven-year term.
- E.
Twelve persons, each appointed to a fourteen-year term.
Correct Answer
B. Seven persons, each appointed to a fourteen-year term.Explanation
The correct answer is "seven persons, each appointed to a fourteen-year term." This is because the Board of Governors of the Federal Reserve consists of seven members, and each member is appointed to a fourteen-year term.Rate this question:
-
- 4.
6. Which of the following is not a major responsibility of the Fed?
- A.
Supplying the economy with paper money
- B.
Providing check-clearing services
- C.
Supervising member banks
- D.
Serving as fiscal agent for the Treasury
- E.
All of the above are major responsibilities of the Fed.
Correct Answer
E. All of the above are major responsibilities of the Fed.Explanation
The correct answer is "All of the above are major responsibilities of the Fed." This means that all of the options listed - supplying the economy with paper money, providing check-clearing services, supervising member banks, and serving as fiscal agent for the Treasury - are considered major responsibilities of the Federal Reserve.Rate this question:
-
- 5.
7. Which of the following is not a major responsibility of the Fed?
- A.
Controlling the money supply
- B.
Serving as the federal government's banker
- C.
Determining tax rates
- D.
Acting as a lender of last resort
Correct Answer
C. Determining tax ratesExplanation
The Federal Reserve, also known as the Fed, is responsible for controlling the money supply, serving as the federal government's banker, and acting as a lender of last resort. However, determining tax rates is not a major responsibility of the Fed. This responsibility falls under the jurisdiction of the legislative branch of the government, specifically the Congress. The Fed's main focus is on monetary policy and maintaining stability in the financial system.Rate this question:
-
- 6.
10. When a check is written on an account at Bank A and deposited in Bank B, the reserve account of __________ will rise and reserves of the entire banking system will __________.
- A.
Bank A; rise
- B.
Bank A; remain constant
- C.
Bank B; rise
- D.
Bank B; remain constant
Correct Answer
D. Bank B; remain constantExplanation
When a check is written on an account at Bank A and deposited in Bank B, the reserve account of Bank B will remain constant and reserves of the entire banking system will remain constant. This is because when a check is deposited in Bank B, Bank B will credit the depositor's account and increase its liabilities. However, since the check is drawn on Bank A, Bank B will send the check to Bank A for collection. Bank A will then debit its reserve account and credit the depositor's account, resulting in no change in the overall reserves of the banking system.Rate this question:
-
- 7.
97. Here is how an open market sale works: A commercial bank __________ government securities to (from) the Fed, which lowers the bank's deposits at the __________ and __________ the bank's __________.
- A.
Buys; Fed; lowers; reserves
- B.
Sells; Treasury; raises; reserves
- C.
Sells; Fed; raises; reserves
- D.
Buys; Treasury; lowers; liabilities
- E.
None of the above
Correct Answer
A. Buys; Fed; lowers; reservesExplanation
When a commercial bank buys government securities from the Fed, it decreases the bank's deposits at the Fed, which in turn lowers the bank's reserves. This is because the bank is using its deposits to purchase government securities, reducing the amount of money it has available as reserves. Therefore, the correct answer is "buys; Fed; lowers; reserves."Rate this question:
-
- 8.
96. Here is how an open market purchase works: The Fed __________ government securities to (from) a commercial bank, which raises the bank's deposits at the __________ and increases the bank's __________.
- A.
Sells; Fed; reserves
- B.
Buys; Fed; reserves
- C.
Buys; Treasury; discount loans
- D.
Sells; Treasury; required reserve ratio
- E.
Buys; Fed; liabilities
Correct Answer
B. Buys; Fed; reservesExplanation
An open market purchase refers to the buying of government securities by the Federal Reserve (Fed) from a commercial bank. This transaction increases the bank's deposits at the Fed and ultimately increases the bank's reserves.Rate this question:
-
- 9.
95. The most important responsibility of the Fed is to
- A.
Clear checks.
- B.
Supervise member banks.
- C.
Serve as fiscal agent for the U.S. Treasury.
- D.
Control the money supply.
Correct Answer
D. Control the money supply.Explanation
The correct answer is "control the money supply". The Federal Reserve, also known as the Fed, plays a crucial role in managing the money supply in the economy. By controlling the money supply, the Fed can influence interest rates, inflation, and overall economic stability. This responsibility involves conducting monetary policy, which includes setting interest rates, buying and selling government securities, and regulating banks. Through these actions, the Fed aims to promote economic growth, maintain price stability, and ensure the stability of the financial system.Rate this question:
-
- 10.
94. The president of the ________________________ holds a permanent seat on the FOMC.
- A.
United States
- B.
Federal Reserve District Bank of New York
- C.
Federal Reserve District Bank of San Francisco
- D.
U.S. Senate banking committee
- E.
None of the above
Correct Answer
B. Federal Reserve District Bank of New YorkExplanation
The president of the Federal Reserve District Bank of New York holds a permanent seat on the FOMC.Rate this question:
-
- 11.
72. Which of the following Fed actions will decrease the money supply?
- A.
An open market purchase of Treasury bills
- B.
An increase in the required reserve ratio
- C.
A decrease in the discount rate
- D.
All of the above
- E.
None of the above
Correct Answer
B. An increase in the required reserve ratioExplanation
An increase in the required reserve ratio will decrease the money supply. This is because the required reserve ratio is the percentage of deposits that banks are required to hold as reserves. When the required reserve ratio is increased, banks are required to hold a larger portion of their deposits as reserves, which reduces the amount of money available for lending and decreases the money supply.Rate this question:
-
- 12.
71. Which of the following Fed actions will increase the money supply?
- A.
Open market purchases of Treasury notes
- B.
An increase in the required reserve ratio
- C.
An increase in the discount rate
- D.
All of the above
- E.
None of the above
Correct Answer
A. Open market purchases of Treasury notesExplanation
Open market purchases of Treasury notes by the Fed increase the money supply. When the Fed purchases Treasury notes, it injects money into the economy, increasing the amount of money available for lending and spending. This leads to an increase in the money supply, as banks have more funds to lend and consumers have more money to spend. Therefore, open market purchases of Treasury notes by the Fed is an action that increases the money supply.Rate this question:
-
- 13.
72. Which of the following Fed actions will decrease the money supply?
- A.
An open market purchase of Treasury bills
- B.
An increase in the required reserve ratio
- C.
A decrease in the discount rate
- D.
All of the above
- E.
None of the above
Correct Answer
B. An increase in the required reserve ratioExplanation
An increase in the required reserve ratio will decrease the money supply because it requires banks to hold a larger percentage of their deposits as reserves, which reduces the amount of money available for lending and decreases the overall money supply in the economy.Rate this question:
-
- 14.
Federal Reserve Action Effect on the Money Supply Raise the required reserve ratio (1) Raise the discount rate (2) Lower the required reserve ratio (3) Conduct open market sale (4) Lower the discount rate (5) Conduct open market purchase (6) 118. Refer to Exhibit 13-2. What word (up or down) should go in the place of blank (1) and blank (2), respectively?
- A.
Up; up
- B.
Up; down
- C.
Down; up
- D.
Down; down
Correct Answer
D. Down; downExplanation
When the Federal Reserve raises the required reserve ratio, it is essentially increasing the amount of reserves that banks are required to hold, which decreases the amount of money that banks can lend out. This leads to a decrease in the money supply, hence the word "down" should go in the place of blank (1). Similarly, when the Federal Reserve raises the discount rate, it is making it more expensive for banks to borrow from the central bank, which also decreases the amount of money that banks can lend out. This again leads to a decrease in the money supply, hence the word "down" should go in the place of blank (2).Rate this question:
-
- 15.
Federal Reserve Action Effect on the Money Supply Raise the required reserve ratio (1) Raise the discount rate (2) Lower the required reserve ratio (3) Conduct open market sale (4) Lower the discount rate (5) Conduct open market purchase (6) Refer to Exhibit 13-2. What word (up or down) should go in the place of blank (3) and blank (4), respectively?
- A.
Up; up
- B.
Up; down
- C.
Down; up
- D.
Down; down
Correct Answer
B. Up; downExplanation
When the Federal Reserve lowers the required reserve ratio (3), it allows banks to hold less money in reserves and therefore increases the amount of money that can be loaned out. This leads to an increase in the money supply. On the other hand, when the Federal Reserve conducts an open market sale (4), it sells government securities to banks and individuals, reducing the amount of money in circulation and therefore decreasing the money supply. So, the word "up" should go in the place of blank (3) and the word "down" should go in the place of blank (4).Rate this question:
-
- 16.
Federal Reserve Action Effect on the Money Supply Raise the required reserve ratio (1) Raise the discount rate (2) Lower the required reserve ratio (3) Conduct open market sale (4) Lower the discount rate (5) Conduct open market purchase (6) 120. Refer to Exhibit 13-2. What word (up or down) should go in the place of blank (5) and blank (6), respectively?
- A.
Up; up
- B.
Up; down
- C.
Down; up
- D.
Down; down
Correct Answer
A. Up; upExplanation
When the Federal Reserve lowers the discount rate, it encourages banks to borrow more money from the Federal Reserve, which increases the money supply. This leads to an upward movement in the money supply. Similarly, when the Federal Reserve conducts an open market purchase, it buys government securities from banks, which also increases the money supply. Therefore, the correct answer is "up; up".Rate this question:
-
- 17.
121. In the United States, paper currency is printed at the
- A.
Bureau of Engraving and Printing.
- B.
Federal Reserve District banks.
- C.
U.S. Mint.
- D.
U.S. Treasury
Correct Answer
A. Bureau of Engraving and Printing.Explanation
The correct answer is Bureau of Engraving and Printing. The Bureau of Engraving and Printing is responsible for printing paper currency in the United States. This government agency is tasked with designing, engraving, and printing paper money, including bills of various denominations. The Federal Reserve District banks, U.S. Mint, and U.S. Treasury are not directly involved in the printing of paper currency, making them incorrect choices.Rate this question:
-
- 18.
122. Which of the following is not a monetary policy tool of the Fed?
- A.
Open market operations
- B.
The required reserve ratio
- C.
The discount rate
- D.
The term auction facility (TAF) program
- E.
Income tax rates
Correct Answer
E. Income tax ratesExplanation
The correct answer is income tax rates. Income tax rates are not a monetary policy tool of the Fed. Monetary policy tools refer to the actions taken by the central bank to control the money supply and interest rates in order to achieve macroeconomic goals. The Fed uses open market operations, the required reserve ratio, the discount rate, and the term auction facility (TAF) program as its monetary policy tools. Income tax rates, on the other hand, are determined by fiscal policy, which is the domain of the government and not the central bank.Rate this question:
-
- 19.
112. The president of the Federal Reserve Bank of ________________ holds a permanent seat on the _________________________.
- A.
New York; Board of Governors of the Federal Reserve System
- B.
Washington D.C.; FOMC
- C.
San Francisco; FOMC
- D.
New York; FOMC
- E.
Washington D.C.; Board of Governors of the Federal Reserve System
Correct Answer
D. New York; FOMCExplanation
The correct answer is New York; FOMC. The president of the Federal Reserve Bank of New York holds a permanent seat on the Federal Open Market Committee (FOMC). The FOMC is responsible for making decisions regarding monetary policy in the United States, including setting interest rates and implementing policies to promote economic stability. The president of the Federal Reserve Bank of New York's inclusion on the FOMC is due to the bank's significance in the financial industry and its proximity to Wall Street.Rate this question:
-
- 20.
110. The Fed is intended to be controlled by
- A.
The President of the United States.
- B.
Congress.
- C.
The President of the United States and Congress, jointly.
- D.
None of the above
Correct Answer
D. None of the aboveExplanation
The Fed, also known as the Federal Reserve System, is not intended to be controlled by the President of the United States or Congress. It was designed to be an independent entity to ensure that monetary policy decisions are made without political interference. The Federal Reserve is governed by a Board of Governors, appointed by the President and confirmed by the Senate, along with regional Federal Reserve Banks. Therefore, the correct answer is "none of the above".Rate this question:
-
- 21.
109. If the Fed purchases government securities from Bank A, __________ in the banking system __________ and the money supply __________.
- A.
Reserves; fall; falls
- B.
Reserves; rise; falls
- C.
Reserves; rise; rises
- D.
Excess reserves; fall; rises
- E.
Excess reserves; rise; falls
Correct Answer
C. Reserves; rise; risesExplanation
When the Fed purchases government securities from Bank A, the reserves in the banking system increase. This is because Bank A receives payment for the securities in the form of reserves. As a result, the money supply also increases because the reserves can be used by banks to create new loans and deposits. Therefore, the correct answer is "reserves; rise; rises".Rate this question:
-
- 22.
86. If reserves rise by $1 million, what is the dollar difference between the maximum change in checkable deposits when the required reserve ratio is 10 percent and when it is 15 percent?
- A.
$10 million
- B.
$3.33 million
- C.
$2 million
- D.
$5 million
Correct Answer
B. $3.33 millionExplanation
When the required reserve ratio is 10 percent, the maximum change in checkable deposits can be calculated using the money multiplier formula: 1 / reserve ratio. In this case, 1 / 0.10 = 10. Therefore, the maximum change in checkable deposits would be $10 million.
When the required reserve ratio is 15 percent, the maximum change in checkable deposits can be calculated using the same formula: 1 / reserve ratio. In this case, 1 / 0.15 = 6.67. Therefore, the maximum change in checkable deposits would be $6.67 million.
The dollar difference between the two scenarios would be the difference between the maximum change in checkable deposits: $10 million - $6.67 million = $3.33 million.Rate this question:
-
- 23.
87. Which of the following will lower the money supply?
- A.
Lowering the discount rate
- B.
Raising the required reserve ratio
- C.
An open market purchase
- D.
An open market sale
- E.
A and d
Correct Answer
E. A and dExplanation
Lowering the discount rate and conducting an open market sale will both lower the money supply. Lowering the discount rate encourages banks to borrow more from the central bank, which increases their reserves and ultimately increases the money supply. On the other hand, conducting an open market sale involves selling government securities, which reduces the amount of money in circulation and thus lowers the money supply. Therefore, both options a and d will result in a decrease in the money supply.Rate this question:
-
- 24.
88. The __________ rate is the interest rate one bank pays another bank for a loan.
- A.
Discount
- B.
Mortgage
- C.
Reserve requirement
- D.
Federal funds
- E.
Bank-borrowing
Correct Answer
D. Federal fundsExplanation
The federal funds rate is the interest rate one bank pays another bank for a loan. This rate is set by the Federal Reserve and is used to regulate the money supply and stabilize the economy. By adjusting the federal funds rate, the Federal Reserve can influence borrowing costs for banks, which in turn affects interest rates for consumers and businesses.Rate this question:
-
- 25.
89. An open market __________ by the Fed increases the money supply; a(n) __________ in the required reserve ratio increases the money supply.
- A.
Sale; decrease
- B.
Purchase; increase
- C.
Sale; increase
- D.
Purchase; decrease
Correct Answer
D. Purchase; decreaseExplanation
When the Fed engages in a purchase in the open market, it is essentially buying government securities from banks. This increases the money supply because the banks receive payment in the form of newly created reserves, which they can then use to make loans and create more money in the economy. On the other hand, when the required reserve ratio is decreased, banks are required to hold a smaller percentage of deposits as reserves, allowing them to lend out more money and increasing the money supply. Therefore, a purchase by the Fed and a decrease in the required reserve ratio both lead to an increase in the money supply.Rate this question:
-
Quiz Review Timeline +
Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.
-
Current Version
-
Mar 20, 2023Quiz Edited by
ProProfs Editorial Team -
Mar 21, 2012Quiz Created by
Uisnech
- Aeronautics Quizzes
- Aerospace Quizzes
- Agricultural Science Quizzes
- Astrology Quizzes
- Astronomy Quizzes
- Atom Quizzes
- Biochemistry Quizzes
- Biomechanics Quizzes
- Biostatistics Quizzes
- Biotechnology Quizzes
- Botany Quizzes
- Branches Of Science Quizzes
- Chemistry Quizzes
- Cytology Quizzes
- Easy Science Quizzes
- Ecology Quizzes
- Electrical Quizzes
- Embryology Quizzes
- Endocrinology Quizzes
- Engineering Quizzes
- Environmental Science Quizzes
- Epidemiology Quizzes
- Forestry Quizzes
- Fossil Quizzes
- Gas Quizzes
- General Science Quizzes
- Genetics Quizzes
- Histology Quizzes
- Human Biology Quizzes
- Integrated Science Quizzes
- Invention Quizzes
- Library Science Quizzes
- Lighting Quizzes
- Liquid Quizzes
- Marine Biology Quizzes
- Microbiology Quizzes
- Molecular Biology Quizzes
- Nature Quizzes
- Neuroscience Quizzes
- Nuclear Science Quizzes
- Oceanography Quizzes
- Psychology Quizzes
- Science And Technology Quizzes
- Science Glossary Quizzes
- Science Knowledge Quizzes
- Science Practice Quizzes
- Scientific Notation Quizzes
- Soil Science Quizzes
- Solar System Quizzes
- Solid Quizzes
- Zoology Quizzes
Back to top