He Federal Reserve Portfolio of Securities

1.  Most of the Federal Reserve’s annual profits each year

a.  are used to finance its ongoing operations

b.  are paid out to the owners (member banks)

c.  are turned over to the U.S. Treasury        

d.  are used to finance the Board of Governors’ expenses

2.  Which of the following is listed on the asset side of the Federal Reserve balance sheet?

a.  deposits of the U.S. Treasury

b.  Federal Reserve notes issued

c.  discounts and advances (loans to banks)

d.  all of the above        

3.  The original purpose of the Federal Reserve was to

a.  conduct interest-rate policy to stabilize employment and the price level

b.  hold debt issued by the U.S. Treasury

c.  serve as lender of last resort

d.  increase profits of commercial banks

4.  Members of the Federal Reserve Board of Governors are

a.  appointed by the 12 Federal Reserve Bank presidents

b.  elected by member banks

c.  appointed by the U.S. president

d.  elected by the U.S. Senate

5.  A panic-induced withdrawal of currency from banks will induce a contraction in the money supply because:

a.  banks will be reluctant to sell off assets        

b.  banks must sell several dollars of assets to obtain one dollar of reserves

c.  banks security sales do not increase total reserves in the banking system

d.  the Federal Reserve is likely to overreact in buying securities

6.  Money is created when

a.  a bank makes a new loan

b.  a bank buys a security from a member of the public, or from a dealer

c.  when either of the above occurs

d.  in none of the above cases

7.  Over short time horizons (a given month), the Federal Reserve can most accurately control

a.  M1

b.  the money supply multiplier, m

c.  the monetary base, B

c.  M2

8.  Suppose that in a given week, the Fed’s security portfolio increases by $400m, float decreases by $600 m, and Treasury deposits at the Fed fall by $800 m.  The impact of these changes is to cause the monetary base to

a.  fall by $1,000m

b.  rise by $200 m

c.  rise by $600 m

d.  rise by $1,800 m

9.  The long-run movement of the monetary base is dominated by

a.  the currency ratio, k

b.  discounts and advances

c.  the Federal Reserve portfolio of securities