1. Which of the following is not true about the Federal Reserve System?

a. The Federal Reserve System consists of 12 regional Federal Reserve Banks.

b. The Federal Reserve System is a department in the Executive Branch of the U.S.
government and the Fed chairman reports directly to the President.
c. The Federal Reserve conducts U.S. monetary policy, supervises and regulates banking
in the United States, maintains stability in the U.S. financial system, and provides
financial services to the government and public.
d. none of the above.
2. The Federal Open Market Committee:
a. includes the seven Federal Reserve governors.
b. includes all the presidents of the regional Federal Reserve banks, but only 5 presidents
vote at any one time.
c. both a and b.
d. neither a nor b.
3. Which of the following is not an objective of the Federal Reserve?
a. economic growth
b. low unemployment
c. price stability
d. high long-term interest rates
4. Which of the following instruments of Fed monetary policy involves the buying or
selling of U.S. government securities in the open market in order to influence the level of
bank reserves?
a. open-market operations
b. discount-rate policy
c. reserve-requirements policy
d. none of the above
5. Which of the following instruments of Fed monetary policy involves setting the interest
rate at which commercial banks and other depository institutions can borrow reserves
from one of the Federal Reserve banks?
a. open-market operations
b. discount-rate policy
c. reserve-requirements policy
d. none of the above
6. The Fed primarily operates by setting a short-term target for the _______.
a. federal funds rate
b. required reserve ratio
c. discount rate
d. none of the above.
7. The interest rate charged by the Federal Reserve when a bank borrows from one of the
12 regional banks is called the _______.
a. federal funds rate
b. required reserve ratio
c. discount rate
d. none of the above.

8. Which of the following is the most unlikely change that the Fed will carry out as part of
any monetary policy decision?
a. change the discount rate.
b. perform an open market operation.
c. change the required reserve ratio.
d. all of the above are equally likely.
9. The route by which changes in the supply of money are translated into changes in
output, employment, prices, and inflation is called:
a. the money-supply multiplier.
b. the required reserve ratio.
c. the monetary transmission mechanism.
d. none of the above.
10. The supply and demand of money will determine:
a. the inflation rate.
b. the required reserve ratio.
c. the monetary transmission mechanism.
d. the interest rate.
11. All other things held equal, an increase in the money supply will:
a. decrease the interest rate.
b. increase GDP.
c. increase the price level.
d. all of the above.
12. The supply of money is determined by:
a. the banking system.
b. the Federal Reserve.
c. both a and b.
d. neither a nor b.
13. The public's desire to hold money is represented by:
a. the demand-for-money curve.
b. the money supply curve.
c. both a and b.
d. neither a nor b.

b. The Federal Reserve System is NOT a department in the Executive Branch of the U.S. government. See
pages 541-543.

c. The Federal Open Market Committee includes the seven Federal Reserve governors and all the
presidents of the regional Federal Reserve banks, but only 5 presidents vote at any one time. See page
543.

d. High long-term interest rates are not an objective of the Federal Reserve System. See page 544.

a. Open-market operations involves the buying or selling of U.S. government securities in the open market
in order to influence the level of bank reserves. See page 544.

b. Discount-rate policy involves setting the interest rate at which commercial banks and other depository
institutions can borrow reserves from one of the Federal Reserve banks. See page 544.

a. The Fed primarily operates by setting a short-term target for the federal funds rate, the rate that banks
pay each other for the overnight use of bank reserves. See page 547.

c. The interest rate charged by the Federal Reserve when a bank borrows from one of the 12 regional
banks is called the discount rate. See page 547.

c. A change in the required reserve ratio is the most unlikely change that the Fed would ever carry out as
part of any monetary policy decision. See page 550.

c. The route by which changes in the supply of money are translated into changes in output, employment,
prices, and inflation is called the monetary transmission mechanism. See page 552.

d. The supply and demand of money will determine the interest rate. See page 554.

d. All other things held equal, an increase in the money supply will decrease the interest rate, increase
GDP, and increase the price level. See page 556.

c. The supply of money is determined by the private banking system and the Federal Reserve. See page
553.

a. The public's desire to hold money is represented by the demand-for-money curve. See page 554.

1. Federal Reserve System

a. an objective of the Federal Reserve.

2. Federal Open Market Committee

b. will decrease the interest rate, increase GDP, and increase

the price level.

3. Price stability

c. involves setting the interest rate at which commercial banks

and other depository institutions can borrow reserves from
one of the Federal Reserve banks.

4. Open-market operations

d. consists of 12 regional Federal Reserve Banks.

5. Discount-rate policy

e. unlikely to be changed by the Fed as part of any monetary

policy decision.

6. Federal funds rates

f. what the Fed primarily sets short-term targets for.

7. Discount rate

g. includes the seven Federal Reserve governors and all the

presidents of the regional Federal Reserve banks, but only 5
presidents vote at any one time.

8. Required reserve ratio

h. the interest rate charged by the Federal Reserve when a

bank borrows from one of the 12 regional banks.

9. Monetary transmission mechanism

i. will determine the interest rate.

10. Supply and demand of money

j. the buying or selling of U.S. government securities in the

open market in order to influence the level of bank reserves.

11. Increase in the money supply

k. the route by which changes in the supply of money are

translated into changes in output, employment, prices, and
inflation.

12. Demand-for-money curve

l. represents the public's desire to hold money.