Title: The Federal Reserve
Course: TEST Course

Q: Which of the following is an inaccurate statement about the banking system?
- Banks borrow from households in order to lend to investors.
- Banks are the critical link in the flow of capital from households to investors.
- Competition between private banks and the central bank is what limits interest rates
A: Competition between private banks and the central bank is what limits interest rates

Q: When describing the banking system, which of these would be a false statement about it?
- Banks lend to investors by borrowing funds from households.
- When it comes to the flow of capital between households and investors, banks are the crucial link.
- Competition between the central bank and private banks causes interest rates to be limited.
A: Competition between the central bank and private banks causes interest rates to be limited.

Q: A critical function of the private banking system is ________?
- Minimizing risks for investors.
- Keeping transactions records to assist the government in collecting taxes.
- Establishing the links between savers and borrowers.
A: Establishing the links between savers and borrowers.

Q: What crucial role does the private banking system play in the market?
- It minimizes investors' risks.
- Maintains transactions records to enable the government to collect taxes.
- It establishes a channel between borrowers and savers.
A: It establishes a channel between borrowers and savers.

Q: Which of the following accurately describes the banking system?
- They put a majority of their deposits into safes and then loan out or invest the rest.
- They serve to hold the deposits of individuals and businesses, but can gradually accumulate interest on deposits by loaning a small portion.
- They put a fraction of their deposits in reserves and then loan out or invest the rest.
A: They put a fraction of their deposits in reserves and then loan out or invest the rest.

Q: Select the following statement that most accurately reflects the banking system?
- The banking system places the majority of deposits in safes, then invests the rest.
- The banking system holds deposits of firms and individuals, but accrues interest on deposits by a investment a small portion of deposits.
- The banking system leaves a fraction of its deposits in reserves and loans or invest the remainder.
A: The banking system leaves a fraction of its deposits in reserves and loans or invest the remainder.

Q: Which of the following scenarios would be MOST beneficial to a bank?
- Carly and Jude decide to withdraw more cash from the bank each month to pay for all of their purchases in cash.
- Jarrell and Chloe decide to deposit money in the bank and pay for everything using their debit card.
- Kim and Micah decide to move most of their money from a checking account into a savings account.
A: Kim and Micah decide to move most of their money from a checking account into a savings account.

Q: From a bank’s perspective, which of these scenarios would be the MOST advantageous for it?
- Jacob pulls out cash from his account every month to pay all of this bills in cash.
- Angela has most of her cash in her checking account and pays for everything with her debit card.
- Santo and Maria have the majority of their salaries directly deposited into their savings account with 20% deposited to their checking account.
A: Santo and Maria have the majority of their salaries directly deposited into their savings account with 20% deposited to their checking account.

Q: Banks USA consistently makes risky loans to small businesses. When a recession hits, Banks USA faces
- a decreased probability of facing a bank run by depositors.
- no more risk of a bank run than if it engaged in overly cautious behavior.
- an increased probability of facing a bank run by depositors.
A: an increased probability of facing a bank run by depositors.

Q: The Bank of Merica has been making risky mortgage loans to high risk individuals. A recession then takes place and the Bank of Merica has the potential to experience
- a lower probability of a bank run by depositors.
- equal risk with a bank run if it had exercised cautious loan behavior.
- a growing possibility of depositors creating a run on the bank.
A: a growing possibility of depositors creating a run on the bank.

Q: A bank is more likely to face bank runs by depositors if it
- keeps more of its money it reserves.
- is solvent.
- makes risky loans to investors.
A: makes risky loans to investors.

Q: What actions by a bank increase the probability it may face a bank run?
- It exercises cautions loans behavior with investors.
- It keeps more of its money it reserves.
- It is an insolvent bank.
A: It is an insolvent bank.

Q: Banks that engage in riskier lending activities may reduce their odds of facing a bank run if they
- reduce their holdings of US Treasuries.
- raise the interest rates they pay to savers.
- keep more of their assets in reserves.
A: keep more of their assets in reserves.

Q: How can banks reduce the chances of a bank run even if they institute riskier lending practices?
- They could hold fewer US Treasury Notes.
- They could increase saver’s interest rates.
- They could increase the amount of assets they keep in reserves.
A: They could increase the amount of assets they keep in reserves.

Q: Why are banks susceptible to potential bank runs?
- Banks have short business hours and customers have difficulty accessing their funds after hours.
- Banks make many conservative loans at high interest rates, but pay low interest rates to depositors.
- Banks keep only fractional funds available, a much higher customer demand to withdraw funds in a short period of time may generate customer panic.
A: Banks keep only fractional funds available, a much higher customer demand to withdraw funds in a short period of time may generate customer panic.

Q: What is one of the reasons banks are vulnerable to bank runs?
- Customers have difficulty accessing their funds after hours because banks have short business hours.
- Banks pay low interest rates to depositors but make many conservative loans at high interest rates.
- Banks daily fractional funds availability may not meet a fast onset of fund withdrawal demands and may induce customer panic.
A: Banks daily fractional funds availability may not meet a fast onset of fund withdrawal demands and may induce customer panic.

Q: The Fed's seven member ruling board of Governors are
- appointed by the president, confirmed by congress, and serve 4-year terms.
- elected, following congressional confirmation, and serve 14-year terms.
- appointed by the president, confirmed by congress, and serve 14-year terms.
A: appointed by the president, confirmed by congress, and serve 14-year terms.

Q: How does a person get to become a member of the Fed’s Board of Governors?
- They are selected as a representative from each regional bank and approved by the president.
- The Board of Directors for each regional bank get elected, then they choose a representative to send to the Board of Governors, who are confirmed by the Senate.
- They are appointed by the president and approved by the Senate.
A: They are appointed by the president and approved by the Senate.

Q: There are ________ regional Federal Reserve banks, who primarily support banks and the economy within their respective districts.
- 7
- 24
- 12
A: 12

Q: How many regional Federal Reserve banks are there in the U.S. who primarily support banks and the economy within their respective districts?
- 6
- 25
- 12
A: 12

Q: Who is responsible for monitoring the money supply and the general stability and safety of the U.S. banking system?
- The Federal Open Market Committee
- The Office of the Comptroller of the Currency
- The Federal Reserve
A: The Federal Reserve

Q: The ________ is responsible for monitoring the money supply and the general stability and safety of the U.S. banking system.
- The Federal Open Market Committee
- The Office of the Comptroller of the Currency
- The Federal Reserve
A: The Federal Reserve

Q: What is the reasoning behind having the seven Fed Board of Governors remain for 14 years on the Federal Reserve?
- Participating in the Fed for the 14 year time period allows the board members to build up seniority and on-the-job understanding.
- Longer terms for board members fosters longer relationships and builds strong networks to push through financial changes to the economy.
- The longer terms are to insulate the members from immediate political pressures and have them focus solely on economic solutions for the nation.
A: The longer terms are to insulate the members from immediate political pressures and have them focus solely on economic solutions for the nation.

Q: Why to the seven Federal Reserve remain for a long time with staggered terms on the Fed Board of Governors?
- The length of time allows the board members to build up on-the-job wisdom and seniority.
- It enables networked relationships to be built in order to make financial changes to the economy quickly.
- The staggered, longer terms insulate members from current political pressure so they can focus only on economic solutions for the U.S.
A: The staggered, longer terms insulate members from current political pressure so they can focus only on economic solutions for the U.S.

Q: Which of the following aptly describes the mission of the Federal Reserve Bank?
- The government’s private bank.
- A profit generating center.
- The banking industry’s private bank.
A: The banking industry’s private bank.

Q: The mission of the Federal Reserve Bank fits best with which of these statements?
- The Fed is to be the government’s private bank.
- The Fed is to be a profit generating center.
- The Fed is the banking industry’s private bank.
A: The Fed is the banking industry’s private bank.

Q: Which of the following is NOT an important role of the Federal Reserve Bank?
- monitoring discrimination in lending
- monitoring anti-competitive behavior in the banking sector
- generating profits
A: generating profits

Q: Which of the following is excluded from the Federal Reserve Bank’s crucial role?
- monitors lending discrimination
- monitors the banking sector for anticompetitive behavior
- producing profits
A: producing profits

Q: Which of the following is an important role of the Federal Reserve?
- monitor the health of banks
- make loans to consumers
- make policy decisions based on the President’s policies
- regulate the supply of money in the country
A: regulate the supply of money in the country

Q: Which of the following is NOT an important role of the Federal Reserve?
- attempt to keep the economy stable
- affect interest rates
- regulate the supply of money in the country
- oversee macroeconomic policies outside the U.S.
A: oversee macroeconomic policies outside the U.S.

Q: If the Federal Reserve did not regulate fiscal policy, monitor banks and provide services for banks, what would most likely be the economic conditions to transact business in the U.S.?
- The economy would primarily be based on a barter system rather than a fiat system.
- There would be no discrimination in lending by local banks.
- The economy would be less efficient and transactions most likely more costly.
A: The economy would be less efficient and transactions most likely more costly.

Q: What would economic conditions potentially be like in the U.S if the Federal Reserve did not regulate fiscal policy, monitor banks and provide services for banks?
- The economy would use a fiat system but most likely a barter system.
- Local, national and regional banks would be liberal in loaning out most of their depositors funds.
- In the economy, transactions would likely be more costly and less efficient.
A: In the economy, transactions would likely be more costly and less efficient.

Q: If a bank does not have enough assets to pay back its liabilities, then
- the bank is solvent.
- it has positive net worth.
- the bank is insolvent.
A: the bank is insolvent.

Q: A midwest bank with new managers and loan officers loaned out large amounts on very risky home loans. The bank sold off some of its real estate assets, but did not have enough to cover its liabilities when the majority of the loans defaulted. The bank is now considered
- solvent.
- having a positive net worth.
- insolvent.
A: insolvent.

Q: Bank regulation requires that banks
- invest in only low-risk stock market portfolios.
- hold at least half of their deposits on hand as reserves, to cover necessary withdraws.
- maintain a minimum net worth in order to protect depositors and creditors.
A: maintain a minimum net worth in order to protect depositors and creditors.

Q: What do bank regulations require of banks?
- That banks only have low-risk stock market portfolios in which they invest.
- That banks must opt out of regulations by paying regulation fees each year.
- That banks retain a minimum net worth to protect depositors and creditors.
A: That banks retain a minimum net worth to protect depositors and creditors.

Q: Bank supervision consists mostly of
- setting maximum reserve requirements, setting bank capital requirements, and setting restrictions on types of loans a bank can make.
- adjusting reserve requirements, setting bank liability requirements, and monitoring risky investments.
- setting minimum reserve requirements, ensuring bank net worth remains positive, and setting restrictions on investments.
A: setting minimum reserve requirements, ensuring bank net worth remains positive, and setting restrictions on investments.

Q: What is included in bank supervision?
- Setting bank capital requirements, setting restrictions on types of loans a bank can make and maximum reserve requirements.
- Monitoring risky investments, setting bank liability requirements, and adjusting reserve requirements.
- Ensuring bank net worth remains positive, setting restrictions on investments and minimum reserve requirements.
A: Ensuring bank net worth remains positive, setting restrictions on investments and minimum reserve requirements.

Q: A bank holding just over the minimum level of cash reserves with a high volume of loans made to developing countries and a large share of assets in the form of loans to more stable domestic industries and households should receive________.
- decreased scrutiny by bank regulators
- no different scrutiny by bank regulators
- increased scrutiny by bank regulators
A: increased scrutiny by bank regulators

Q: The Mid-Merica Bank has a precedent of saying ‘yes’ to almost any loan asked for by customers (households and firms). Because of the large volume of loans it keeps the minimum amount of cash reserves. In addition to these domestic loans, the Mid-Merica Bank has been supplying a large volume of loans to Nigeria’s prince and royal family who are in need of money and funds transferring. According to bank regulations the Mid-Merica Bank would receive ________ by bank regulators.
- decreased scrutiny
- no different scrutiny
- increased scrutiny
A: increased scrutiny

Q: Since the 1930s, bank runs are not problematic in the United States because
- the FDIC’s deposit insurance program punishes any banks that do not hold enough money in their reserves.
- private deposit insurance programs have stepped in to supplement the FDIC and guarantee that depositors will receive all of their investments.
- the FDIC provides deposit insurance and guarantees that depositors will receive a portion, if no all, of their money.
A: the FDIC provides deposit insurance and guarantees that depositors will receive a portion, if no all, of their money.

Q: Why are bank runs in the United States relatively scarce since the 1930s?
- Because banks not retaining enough money in their reserves are closed by the FDIC’s deposit insurance program.
- Because most banks use private deposit insurance programs which supplements the FDIC depositor guarantee.
- Because of the guarantees that depositors will receive a portion, if no all, of their money from the FDIC deposit insurance.
A: Because of the guarantees that depositors will receive a portion, if no all, of their money from the FDIC deposit insurance.

Q: Financial contagion may results in lost integrity in the entire financial system. To prevent this from happening, the Fed may
- consult with private deposit insurance programs to cover the losses of insolvent banks.
- act as the lender of last resort to decrease the money supply.
- act as the lender of last resort to make short-term emergency loans, as needed.
A: act as the lender of last resort to make short-term emergency loans, as needed.

Q: If the public and community loses trust in banks it affects the entire U.S. financial system. In order to keep this type of financial contagion from happening, the Fed
- guides and regulates private deposit insurance programs to cover insolvent bank losses.
- decreases the money supply as acting lender of last resort.
- makes as needed short-term emergency loans, by acting as the lender of last resort.
A: makes as needed short-term emergency loans, by acting as the lender of last resort.

Q: Ultimately, FDIC ensures that ________.
- there will always be sufficient consumption to maintain a stable economy
- the government can minimize its obligations to savers
- there will always be sufficient loanable funds for investors to tap for economic growth generating activities
A: there will always be sufficient loanable funds for investors to tap for economic growth generating activities

Q: What does the FDIC ensure?
- There will always be sufficient demand and consumption to maintain a stable economy
- The government can minimize its obligations to savers.
- There are adequate loanable funding resources to grow the economy by ensuring they are available to investors to generate economic activity.
A: There are adequate loanable funding resources to grow the economy by ensuring they are available to investors to generate economic activity.

Q: Moral hazard is associated with which of the following Federal Reserve bank functions?
- FDIC
- Open market operations
- Lender of last resort
A: Lender of last resort

Q: Which of the following Federal Reserve bank functions is related to moral hazards?
- FDIC
- Compliance with consumer protection laws
- Lender of last resort
A: Lender of last resort