Question

What is included in bank supervision?

Monitoring risky investments, setting bank liability requirements, and adjusting reserve requirements.

Setting bank capital requirements, setting restrictions on types of loans a bank can make and maximum reserve requirements.

Ensuring bank net worth remains positive, setting restrictions on investments and minimum reserve requirements.

A critical function of the private banking system is ________?

Establishing the links between savers and borrowers.

Keeping transactions records to assist the government in collecting taxes.

Minimizing risks for investors.

When the central bank decides it will buy bonds using open market operations

the money supply decreases.

the money supply increases.

interest rates decrease.

A central bank that desires to reduce the quantity of money in the economy can:

raise the reserve requirement.

lower the discount rate.

lower the reserve requirement.

Why to the seven Federal Reserve remain for a long time with staggered terms on the Fed Board of Governors?

It enables networked relationships to be built in order to make financial changes to the economy quickly.

The length of time allows the board members to build up on-the-job wisdom and seniority.

The staggered, longer terms insulate members from current political pressure so they can focus only on economic solutions for the U.S.

Lower reserves requirements, lead to a ________ in interest rates and a/an ________ in the money supply.

fall; increase

fall; decrease

rise; decrease

What happens to the money supply if the Fed lowers the discount rate?

it decreases, and then increases

it decreases

it increases

If the Fed increases the discount rate, then Key Bank will

increase its reserves.

decrease its reserves.

make more loans.

A contractionary or tight monetary policy

reduces borrowing.

stimulates borrowing.

lowers interest rates.

Answer 1

1. A. Monitoring risky investments, setting bank liability requirements, and adjusting reserve requirements.

Bank supervsion is the act of monitoring the financial performance and operations of banks in order to ensure that they are operating safely and soundly and following rules and regulations. Bank supervision is conducted by governmental regulators and occurs in order to prevent bank failures.

2. B. Establishing the links between savers and borrowers.

3. B. the money supply increases.

When the central bank decides it will buy bonds using open market operations, it is an expansionary monetary policy.

4. A.raise the reserve requirement.

This is a contractionary monetary policy and will decrease the quantity of money in the economy.

5. C.The staggered, longer terms insulate members from current political pressure so they can focus only on economic solutions for the U.S.

The length of the terms and the staggered appointments process are intended to contribute to the insulation of the Board and the Federal Reserve System from day-to-day political pressures to which it might otherwise be subject.

6. A. fall; increase

7. C. it increases

When the Fed lowers the discount rate, this increases excess reserves in commercial banks throughout the economy and expands the money supply.

8. A. increase its reserves

9. A. reduces borrowing.