Slides 12-14

Question 1

The Fed’s four general duties include conducting monetary policy in pursuit of a ___, supervising and regulating banking institutions, containing ___ that may arise in financial markets and providing ___.

Answer 1

Dual mandate, containing systemic risk, providing financial services

Question 2

There are ___ federal reserve banks located in the nation, and the system is headed by the ___.

Answer 2

12, Board of Governors

Question 3

There are ___ in the Board of Governors, ___ members of the Fed Reserve Banks and ___ members of the Federal Open Market Committee.

Answer 3

7, 12, 12

Question 4

Class A directors are elected by ___, Class C directors are appointed by ___, Class B directors are elected by ___.

Answer 4

Member banks (three bankers), appointed by the Board of Governors (three public interest directors), and Class B are elected by member banks (three business leaders

Question 5

The Fed reserve bank function to evaluate proposed mergers between banks, act as ___ between the business community, examine bank holding companies, collect data, and research/

Answer 5

Liasons

Question 6

Directors establish ___ and decide ___.

Answer 6

Establish the discount rate, decide which banks can obtain discount loans

Question 7

Five of the 12 bank presidents have a vote on ___.

Answer 7

The FOMC

Question 8

Member banks are (required/not required) to be members of the Federal Reserve System. Commercial banks chartered by states are not required by may choose to be members. Commercial banks are (required/not required) to become members, but may ___.

Answer 8

Are required to; are not required to; but may choose to

Question 9

The Federal Reserve Bank of NY has the special role of executing monetary policy, as ___ of US Treasury conducts ___, intervenes in ___, and provides services to foreign banks.

Answer 9

As agent of US Treasury conducts gov’t financing operations, intervenes in foreign market

Question 10

The FRBNY president serves as ___ of the ___ as a permanent voting member.

Answer 10

Vice Chair of the FOMC

Question 11

The Board of Governors of the Federal Reserve System has ___ members headquartered in Washington DC. They are appointed by ___ and confirmed by ___.

Answer 11

Seven members, Appointed by president and confirmed by the Senate

Question 12

The Board of Governors of the Fed Reserve System have a ___-year non-renewable term. The President selects the ___, who is effectively a ___, but serves a four-year renewable term as ___.

Answer 12

14-year, Chairman, Governor, Chair

Question 13

Twice a year (in ___ and ___), the Fed Chair appears before both Houses of Congress to provide updates on Fed policy.

Answer 13

In February and July

Question 14

The Board of Governors have the duty to vote on conduct of open market operations (as members of FOMC), set reserve requirements, controls the discount rate through ___ process, set ___ requirements, and approves ___ for new activities.

Answer 14

Through “review and determination”, set margin requirements, and approves bank mergers and applications for new activities

Question 15

The Board of Governors also have the duty to specify the permissible ___ and supervises the activities of ___ operating in the US.

Answer 15

The permissible activities of bank holding companies, supervises the activities of foreign banks operating in the US

Question 16

The FOMC meets ___ times a year and consists of ___ members of the ___, the president of the FRBNY, and the presidents of ___ other Federal Reserve Banks.

Answer 16

Eight times a year, seven members of the Board of Gov, presidents of four other Fed Reserve banks

Question 17

The Chairman of the Board of Gov is also ___ of the FOMC, and the President of FRNBY is ___ of the FOMC.

Answer 17

Chair, Vice Chair

Question 18

What organization is responsible for issuing directives to the trading desk at the FRBNY to set the Fed Funds Target?

Answer 18

The FOMC

Question 19

Prior to each FOMC meeting, the “___” is created, a regional description of economic conditions based on surveys of business in each Fed Reserve district.

Answer 19

The “Beige-Book”

Question 20

The ___-book forecast is a go-round, and the ___-book forecast is a monetary policy and domestic policy directive.

Answer 20

The Green Book, The Blue Book

Question 21

The Role of the Chairman is to set the ___ for FOMC meetings and supervise ___.

Answer 21

Set the agenda, supervise professional economists and advisers

Question 22

The benefits of Fed Transparency include leveling the playing field, greater accountability, reducing ___ lags by cutting ___ to zero, improving the transmission of policy via the ___ of the ___, and reducing “___” or “term-___” embedded in the yield curve.

Answer 22

Reducing policy lags, cutting recognition lags to zero, via the expectations theory of the yield curve, reducing “liquidity” or “term premiums”

Question 23

The Fed could become more transparent by establishing an explicit ___, release FOMC sooner than the current ___-week lag, and provide a forecast of the most likely trajectory of the ___.

Answer 23

Inflation Target (Done), 3-week lag, trajectory of the Fed Funds Target rate

Question 24

The case in favor of central bank independence is because political pressure would impart an ___ bias to monetary policy, and the risk of facilitating ___ financing of large budget deficits (AKA ___ the Federal Debt).

Answer 24

An inflationary bias, facilitating the Treasury, AKA Monetarizing the Federal Debt

Question 25

The case against central bank independence is because it is ___, ___ and it becomes difficult to coordinate ___.

Answer 25

Undemocratic, unaccountable, difficult to coordinate fiscal and monetary policy

Question 26

The four agents of the money supply process are/is the Federal Reserve System, ___, ___ and ___.

Answer 26

Banks (depository institution/financial intermediaries, Depositors (individuals and institutions), Borrowers (individuals and institutions)

Question 27

The monetary base is sometimes called “___” and is given as MBase= ___+___

Answer 27

High-powered money, Reserves + Currency

Question 28

An open market purchase (increases/decreases) the volume of bank reserves, whereas an open market sale (increases/decreases) the volume of bank reserves.

Answer 28

Increases, Decreases

Question 29

If I borrow $100 from the Discount Window, this (increases/decreases) bank reserves by $100.

Answer 29

Increases

Question 30

Other factors that affect banks reserves and the monetary base include ___, ___ deposits at the Fed, interventions in the ___ market, and ___ from the Fed’s portfolio.

Answer 30

Float, Treasury deposits, FOREX, Redemptions

Question 31

Required Reserves = ___x___

Answer 31

Reserve Ratio x Deposits

Question 32

Excess reserves represent a cushion against ___; banks typically want to hold little excess reserves because up until October 2008 these balances ___.

Answer 32

Uncertainty, balances didn’t earn interest

Question 33

Deposit growth is also ___.

Answer 33

Money supply

Question 34

Deposit growth or money supply is controlled exogenously by the ___, endogenously by the ___, and also determined by a combination of the ___ actions and ___.

Answer 34

The Fed, the demand for credit, a combination of Fed actions and market dynamics.

Question 35

The deposit multiplier doesn’t work in the real world because of ___, which renders and disconnect between ___ growth and required ___.

Answer 35

Lagged Reserve Accounting (LRA), Deposit, Reserves

Question 36

The deposit multiplier also doesn’t work in the real world because of federal ___.

Answer 36

Funds rate targeting

Question 37

The prime goals of monetary policy and the federal reserve act include: maximum sustainable ___ and ___, ___ stability, and ___ long term interest rates.

Answer 37

Growth and employment, price stability, moderate

Question 38

Maximum sustainable growth is ___ GDP.

Answer 38

Potential

Question 39

The three basic tools of the fed are: ___ ___ operations, reserve ___, and ___ ___ loans.

Answer 39

Open market operations, reserve requirement, discount window loans

Question 40

Open market operations are aimed at manipulating the Fed’s balance sheet to affect ___.

Answer 40

The level of bank reserve balances

Question 41

To add reserves the fed can (buy/sell) securities outright or engage in a ___ Repurchase Agreement.

Answer 41

Buy, Temporary Repo (RP)

Question 42

To drain reserves the fed can (buy/sell) securities outright or engage in a ___ Repurchase Agreement.

Answer 42

Sell, Reverse Repo (RRP)

Question 43

The Fed’s open market desk buys and sells securities via a “Primary ___ ___ Dealers”

Answer 43

Gov’t Securities

Question 44

Buying reserves does exactly what to the level of bank reserves and the discount rate?

Answer 44

Increases bank reserves and drives the fed funds rate lower

Question 45

Dynamic open market operations are aimed at fundamentally changing the ___, and are a ___ decision.

Answer 45

Funds target rate, Policy

Question 46

Defensive open market operations are aimed at ___ changes in the autonomous ___ factors with the intent of getting the funds rate to trade ___.

Answer 46

Offsetting, reserve factors, to trade close to target

Question 47

The demand for reserves = ___ demand + required reserve inclusive of ___ balances

Answer 47

Excess, clearing

Question 48

The computation period for required reserves is a ___ period, and begins 30 days ahead of the beginning of the Reserve ___ ___.

Answer 48

2-week, Reserve Maintenance Period

Question 49

Treasury deposits held at the fed do exactly what to reserves?

Answer 49

Drain reserves

Question 50

Float (adds/drains) reserves.

Answer 50

Adds

Question 51

Prior to 2003, the discount rate was set ___ the fed funds rate, and served as an ___ on the fed funds rate.

Answer 51

Below, anchor

Question 52

Banks were reluctant to borrow from the fed because there were ___ costs of borrowing, which became more pronounced during ___.

Answer 52

Implicit costs, times of stress

Question 53

The higher the implicit costs of borrowing from the fed, the larger the spread between the ___ rate and the ___ rate for a given level of borrowing.

Answer 53

Funds rate and the discount rate

Question 54

Beginning January 2003, the discount rate became the ___ rate, which was an attempt to remove any ___ costs of borrowing.

Answer 54

Penalty, implicit

Question 55

The discount rate was set initially ___ percent above the prevailing fed funds target (during the discount rate/penalty rate 2003 phenomenon). This is analogous to putting a ___ on the fed funds rate.

Answer 55

1%, ceiling

Question 56

Cutting the discount rate will have no effect on the funds rate unless banks are ___.

Answer 56

Already borrowing heavily from the window

Question 57

Are reserve requirements regarded as an effective policy tool?

Answer 57

No