Chapter 4 Functions of the Fed 289 Chapter 4 Functions of the Fed 1 Which of the following is not a major component of the Federal Reserve System A member banks B Federal Open Market Committee C Securities and Exchange Commission D Board of Governors ANSWER C 2 Of the nine directors of each Fed district bank is are elected by member banks in that district A one B nine C six D three ANSWER C 3 Which of the following is not an activity of Fed district banks A clearing checks B replacing old currency C providing loans to depository institutions D acting as an intermediary to match up lenders and borrowers in the commercial paper market ANSWER D 4 All are required to be members of the Federal Reserve System A state banks B national banks C savings and loan associations D finance companies E state banks and national banks ANSWER B 5 The is made up of seven individual members and each member is appointed by the President of the United States A Board of Governors B Federal Reserve district bank C Federal Open Market Committee FOMC D Securities and Exchange Commission ANSWER A 290 Chapter 4 Functions of the Fed 6 Which of the following is currently a main role of the Federal Reserve s Board of Governors A regulating commercial banks B regulating foreign trade C controlling monetary policy D regulating commercial banks and controlling monetary policy ANSWER D 7 With regard to monetary policy which of the following is under direct control of the Federal Reserve s Board of Governors A revise reserve requirements for depository institutions B authorize changes in the amount of borrowing by the Treasury C monitor the stock market for insider trading D monitor the derivatives market for illegal trading strategies ANSWER A 8 The rate is the interest rate charged on Fed district bank loans to depository institutions A federal funds B prime C primary credit lending D real ANSWER C 9 Which of the following is an action that the Fed uses to increase or decrease the money supply A buying or selling Treasury securities in the secondary market B adjusting the tax rate imposed on income earned on Treasury securities C adjusting the coupon rate on Treasury bonds D selling Treasury securities in the primary market ANSWER A 10 FOMC money supply level objectives are specified in the form of a A high end B low end C specific money supply level D target range ANSWER D 11 Total funds of commercial banks will initially by the dollar amount of securities by the Fed A increase purchased B increase sold C decrease purchased D increased purchased or sold ANSWER A Chapter 4 Functions of the Fed 291 12 The purchase of government securities by someone other than the Fed results in A an overall increase in reserves among commercial banks B an overall decrease in reserves among commercial banks C offsetting changes in reserve positions at commercial banks D an increase in securities maintained by the Fed ANSWER C 13 As the supply of funds in the banking system the federal funds rate along with other interest rates A increases declines B increases increases C declines declines D none of these ANSWER A 14 Repurchase agreements are purchased by the Fed to the aggregate level of bank funds A temporarily decrease B permanently increase C permanently decrease D temporarily increase ANSWER D 15 When open market operations are used to bank funds the yield on debt instruments A reduce decreases B reduce increases C increase increases D none of these ANSWER B 16 open market operations offset the impact of other conditions that affect the level of funds A Active B Passive C Dynamic D Defensive ANSWER D 17 credit may be used for any purpose and is available only to depository institutions that meet specific requirements for financial soundness A Primary B Secondary C Tertiary D None of these ANSWER A 292 Chapter 4 Functions of the Fed 18 To decrease money supply the Fed could the reserve requirement ratio A increase B stabilize C reduce D eliminate ANSWER A 19 The is directly responsible for controlling money supply growth A Federal Advisory Council B FOMC C Board of Governors D President of the United States ANSWER B 20 Assume that the reserve requirements ratio is 15 An initial injection of 150 million could result in a maximum change in the money supply of A 150 million B 1 billion C 1 million D 22 5 million ANSWER B 21 The form of money consisting of currency held by the public and checkable deposits at depository institutions is called A M1 B M2 C M3 D MMDA ANSWER A 22 The Monetary Control Act of 1980 subjected A only member banks to the reserve requirements set by the Fed B only S Ls to the reserve requirements set by the Fed C all depository institutions to the reserve requirements set by the Fed D only national banks to reserve requirements set by the Fed ANSWER C 23 The voting members of the Federal Open Market Committee consist of the Board of Governors plus the A President of the United States B presidents of the 12 Fed district banks C presidents of 5 Fed district banks D Federal Advisory Council ANSWER C 24 The Board of Governors is composed of A seven members appointed by the President of the United States B the 12 presidents of the Fed district banks Chapter 4 Functions of the Fed 293 C the Federal Open Market Committee plus the Federal Advisory Council D the Federal Open Market Committee plus the President of the United States ANSWER A 25 The is directly responsible for setting reserve requirements A Federal Advisory Council B FOMC C Board of Governors D President of the United States ANSWER C 26 The is directly responsible for conducting monetary policy A Federal Advisory Council B FOMC C Senate D President of the United States ANSWER B 27 Based on a 2003 policy the primary credit lending rate is set A lower than the federal funds rate B lower than the prevailing Treasury bill rate C lower than the expected inflation rate D above the federal funds rate ANSWER D 28 A n in Federal Reserve float causes a n in bank reserves A increase increase B increase decrease C decrease decrease D increase or decrease decrease ANSWER D 29 The consists of seven members each of whom is appointed by the President of the United States A FOMC B Federal Advisory Council C Board of Governors D none of these ANSWER C 30 Assume that the reserve requirement ratio is 12 percent and that the Fed uses open market operations by buying 200 million worth of Treasury securities Assuming that banks use all funds except required reserves to make