Multiple Choice Questions:
1. The most important role of the Federal Reserve System is
a. Raising or lowering taxes.
b. Regulating the supply of money.
c. Increasing or reducing government spending.
d. None of the above.
2. Which of the following is not a function of the Federal Reserve System?
a. Being a lender of last resort
b. Being concerned with the stability of the banking system
c. Serving as a major bank for the central government
d. Setting currency exchange rates
3. The Fed is institutionally independent. A major advantage of this is that
a. Monetary policy is subject to regular ratification by congressional votes.
b. Monetary policy is not subject to control by politicians.
c. Monetary policy cannot be changed once it has been determined.
d. Monetary policy will always be coordinated with fiscal policy.
e. Monetary policy will always offset fiscal policy.
4. In order to increase the rate of growth of the money supply, the Fed can
a. Raise the discount rate.
b. Raise the reserve requirement.
c. Buy government bonds on the open market.
d. Sell government bonds on the open market.
5. The monetary policies generated by the Federal Reserve System
a. Must be consistent with fiscal policies that are formatted in Congress.
b. Are sometimes inconsistent with fiscal policies.
c. Must be ratified by Congress.
d. Must be approved by the president.
6. If the Fed buys a bond from an individual instead of a bank, what is the effect on the money supply?
a. There will be no effect at all.
b. The money supply will shrink.
c. The money supply will grow by smaller amounts than if the Fed bought from a bank.
d. The money supply will grow by larger amounts than if the Fed bought from a bank.
e. The effect will be the same as if the Fed had bought the bond from a bank.
7. When the Fed purchases government bonds from a commercial bank, the bank
a. Automatically becomes poorer.
b. Loses equity in the Fed.
c. Receives reserves that can be used to make additional loans.
d. Loses its ability to make loans.
8. If the Fed wishes to expand the money supply, it
a. Buys stocks.
b. Sells stocks.
c. Buys government bonds.
d. Sells government bonds.