Question : 16.4   The Federal Reserve System 1) Suppose there a bank panic. : 1244816

16.4   The Federal Reserve System

1) Suppose there is a bank panic. Which of the following would not be a consequence of this bank panic?

A) Bank total reserves would decrease.

B) Required reserves would increase.

C) Bank checking account balances would decrease.

D) Individual banks would have to shrink the value of loans they made.

E) The economy would likely enter into a recession.

2) Banks keep ________ of checking deposits as reserves because on a typical day withdrawals ________ deposits.

A) more than 100%; are much greater than

B) exactly 100%; are about the same as

C) less than 100%; are about the same as

D) exactly 100%; are much greater than

E) less than 100%; are much greater than

3) The Federal Reserve was established in 1913 to

A) prevent inflation by decreasing the money supply.

B) stimulate the economy by increasing bank reserves.

C) stop bank panics by acting as a lender of last resort.

D) prevent bad loans by requiring banks to hold reserves.

4) If the central bank can act as a lender of last resort during a banking panic, banks can

A) call in their loans to their customers and eventually restore the public’s faith in the banking system.

B) satisfy customer withdrawal needs and eventually restore the public’s faith in the banking system.

C) borrow more and more money from the central bank, and this will lower its reserves and decrease the public’s faith in the banking system.

D) encourage the public to borrow directly from the central bank, and this will worsen the banking panic.

5) The seven members of the Board of Governors of the Federal Reserve are appointed by

A) Congress.

B) the President.

C) the Governors of the States.

D) leaders in the banking industry.

E) the Treasury Department.

6) Which of the following is not a function of the Federal Reserve System, or the “Fed”?

A) acting as a lender of last resort

B) acting as a banker’s bank

C) performing check clearing services

D) insuring deposits in the banking system

E) taking actions to control the money supply

7) In response to the destructive bank panics of the Great Depression, future bank panics are designed to be prevented by

A) the Federal Reserve System acting as a lender of last resort.

B) the Federal Reserve System conducting open market operations.

C) the establishment of the Federal Deposit Insurance Corporation.

D) establishing a fractional reserve system of banking.

E) increasing the required reserve ratio to 100%.

8) If people speculate that a run on one bank will cause a run on all banks in the financial system, and this speculation proves accurate, then the financial system would experience what is known as a

A) commodity crisis.

B) securitization meltdown.

C) bank panic.

D) institutional death spiral.

9) A central bank like the Federal Reserve in the United States can help banks survive a bank run by

A) printing money.

B) acting as a lender of last resort.

C) raising the discount rate.

D) increasing the required reserve ratio.

10) Open market operations refer to the purchase or sale of ________ to control the money supply.

A) corporate bonds and stocks by the Federal Reserve

B) U.S. Treasury securities by the Federal Reserve

C) corporate bonds and stocks by the U.S. Treasury

D) U.S. Treasury securities by the U.S. Treasury