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CHAPTER 2 TRUE/FALSE QUESTIONS (F) 1. Deposits should expand when reserve requirements increase. (F) 2. The Fed's most influential tool is reserve requirements. (T) 3. Federal Reserve regulations affect many nonbank institutions. (T) 4. Depository institutions create money when they lend or invest excess reserves. (T) 5. The Federal Open Market Committee basically establishes our nation's monetary policy. (T) 6. A primary function of the Fed is economic stabilization via control of the money supply. (T) 7. The Fed can substantially control the level of total bank reserves. (F) 8. The Federal Reserve is independently funded and thus immune to any political pressure. (F) 9. In the check-clearing system DACI usually exceeds CIPC, creating Fed float. (T) 10. A decrease in Federal Reserve float decreases member bank reserves. (F) 11. Currency is an asset of the Federal Reserve Banks. (F) 12. A decrease in reserve requirements increases the total level of member bank reserves. (F) 13. An increase in the money supply does not affect the supply of loanable funds. (F) 14. Open market purchases by the Fed reduce total reserves in the banking system. (T) 15. Monetary policy is a highly partisan issue. (T) 16. The Fed can change the level of member bank reserves as well as reserve requirements. (T) 17. The first impact of monetary policy upon depository institutions is via excess reserves. (F) 18. Deposits should expand when the Fed sells securities. (F) 19. The Discount Rate is a direct control on the money supply. (T) 20. The Fed is this nation's first permanent central bank. (F) 21. The Federal Reserve System replaced the National Banking system. (F) 22. Congress is powerless over the Fed. (F) 23. Excess reserve balances pay interest; required reserve balances do not. (T) 24. Open Market Operations are the primary tool of monetary policy today. (F) 25. A Fed governor has a lifetime appointment. (T) 26. As the Fed expands the monetary base, bank loans and investments should expand also. (T) 27. Though decentralized in geography, today’s Fed is highly centralized in power structure. (T) 28. Reserve requirements are not considered a viable tool of monetary policy. 19
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(F) 29. The “monetary base” comprises the Fed’s most important assets. (T) 30. The Federal Reserve Bank of New York is the “headquarters” of open market operations. (T) 31. No two Governors may be from the same Federal Reserve District. (F) 32. Reserve requirements apply only to member banks in Federal Reserve System. (F) 33. The Chairman of the Fed is highly visible, but not very powerful. (T) 34. All national banks must join the Federal Reserve System. (T) 35. Margin requirements are an important regulatory power of the Fed. (F)
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This note was uploaded on 03/24/2011 for the course FINA 409 taught by Professor John during the Spring '11 term at Ohio State.

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