Chapter 5THE FEDERAL RESERVE TRUE/FALSEF 1. The power to create money is given by the Constitution to the Federal Reserve.
1. When commercial banks grant loans to the public, theirtotal reserves are reduced.
2. When corporations retire (pay off) loans from commercial banks, excess reserves are increased.
3. When the general public uses money in checking accountsto purchase stock issued by corporations, the required reserves ofbanks are reduced.
4. Only large commercial banks are subject to the regulation ofthe Federal Reserve.
5. When the Federal Reserve sells securities that are purchasedby individuals, the money supply is increased.
6. When the Federal Reserve buys securities, the reserves of banks are increased.
7. Open market operations is a more flexible tool of monetary policy than changing the reserve requirements.
8. Reserve requirements are infrequently changed to affect commercial bank lending.
9. The Federal Open Market Committee (FOMC) has twelve members that include the Board of Governors.
Governors of the Federal Reserve.
Reserve charges banks when they borrow reserves.
lending capacity of banks is reduced.