Banking: Sample Quiz

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1. How many members are on the Board of Governors of the Federal Reserve System?

7. 9. 12. 14.

2. How many voting members does the Federal Open Market Committee have?

7. 9. 12. 14.

3. Federal Reserve Notes are:

an asset of the U.S Treasury.
 a liability of the U.S. Treasury.
 an asset of the Federal Reserve.
 a liability of the Federal Reserve.

4. Money is created in the banking system when banks:

clear checks.
 make loans.
 collect the loans (the loans are repaid.)
 charge interest on the loans.

5. An example of contractionary monetary policy is:

an increase in tax rates for the rich.
 a reduction of the size of Social Security checks.
 an open market sale of Treasury Bills.
 a decrease in reserve requirements.

6. The major earning asset of banks is:

savings deposits.
 checking deposits.
 legal reserves.
 loans extended to their customers.

7. A commercial bank creates money in the process of:

selling government securities.
 making loans to the public.
 exchanging vault cash for checking-account deposits.
 clearing checks.

8. The Federal Reserve System:

is composed of seven regional banks, each headed by a member of the Board of Governors.
 is part of the United States Treasury Department.
 is the organization which insures deposits and banks and savings and loan associations.
 issues virtually all paper money used in the United States.

9. Which actions does the Fed rely on most frequently to conduct monetary policy?

Open market operations
 Changes in the reserve ratio
 Selective credit controls
 Changes in the discount rate

10. Which of the following would tend to decrease U.S. money stock?

A sale of securities on the open market by the Fed
 A lowering of reserve requirements
 A lowering of the discount rate
 An inflow of gold into the U.S.

11. Individual banks are limited in their ability to create money because:

banking is a highly competitive industry with a low profit margin.
 banking regulations prohibit bank lending when it increases money stock.
 only the Treasury and the Federal Reserve can issue legal tender.
 actions which create money usually result in a loss of reserves to other banks.

12. Which of the following qualifies as legal reserves for a bank?

Demand deposits with other banks.
 U.S. government securities.
 Deposits with the regional Federal Reserve bank.
 None of the above.

13. Monetary policy is carried out by the:

Commerce Department.
 Treasury Department.
 Internal Revenue Service.
 none of the above.

14. To a macroeconomist, what do the initials FOMC mean?

Federal Open Market Committee.
 Fiscal Oversight Money Commitment.
 Focus of Mutual Credit.
 Federation of Monetary Control.

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Copyright Robert Schenk