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Money, Banking, and Financial Markets Practice Test: Central Banks and the Federal Reserve System
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The Federal Reserve is the central bank of the United States. Central banks help financial systems run smoothly and reduce the likelihood of financial crises.  The Federal Reserve's three main functions are: Provide banking services: The Federal Reserve provides banking services to commercial banks, other depository institutions, and the federal government. Promote financial stability: The Federal Reserve promotes the stability of the financial system. Monetary policy: The Federal Reserve uses monetary policy to control the amount and growth of the money supply in the economy.  The... Show more
Money, Banking, and Financial Markets Practice Test: Central Banks and the Federal Reserve System
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25 Questions

1. A nominal variable, such as the inflation rate or the money supply, which ties down the price level to achieve price stability is called ________ anchor.
2. The nine directors of the Federal Reserve Banks are split into three categories: ________ are professional bankers, ________ are leaders from industry, and ________ are to represent the public interest and are not allowed to be officers, employees, or stockholders of banks.
3. Even if the Fed could completely control the money supply, monetary policy would have critics because
4. Which of the following are duties of the Board of Governors of the Federal Reserve System?
5. A nominal anchor promotes price stability by
6. Monetary policy is considered time-inconsistent because
7. The Federal Reserve Banks are ________ institutions since they are owned by the ________.
8. The ________ problem of discretionary policy arises because economic behavior is influenced by what firms and people expect the monetary authorities to do in the future.
9. The majority of members of the Federal Open Market Committee are
10. Price stability is desirable because
11. Having interest rate stability
12. The Second Bank of the United States
13. The primary goal of the European Central Bank is
14. The mandate for the monetary policy goals that has been given to the Federal Reserve System is an example of a ________ mandate.
15. Members of Congress are able to influence monetary policy, albeit indirectly, through their ability to
16. Prior to 1980, member banks left the Federal Reserve System due to
17. The Federal Reserve entity that makes decisions regarding the conduct of open market operations is the
18. In the Governing Council, the decision of what policy to implement is made by
19. The Federal Reserve Bank of ________ plays a special role in the Federal Reserve System because it houses the open market desk.
20. The Fedʹs support of the Depository Institutions Deregulation and Monetary Control Act of 1980 stemmed in part from its
21. Member commercial banks have purchased stock in their district Fed banks; the dividend paid by that stock is limited by law to ________ percent annually.
22. Under the European System of Central Banks, the National Central Banks have the same role as the ________ of the Federal Reserve System.
23. Which of the following are duties of the Board of Governors of the Federal Reserve System?
24. Banks subject to reserve requirements set by the Federal Reserve System include
25. Foreign exchange rate stability is important because a decline in the value of the domestic currency will ________ the inflation rate, and an increase in the value of the domestic currency makes domestic industries ________ competitive with competing foreign industries.

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