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Introduction to the Federal Reserve quiz

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  • When was the Federal Reserve established and why?
    The Federal Reserve was established in 1913 to prevent bank failures and bank runs after a series of banking panics.
  • What is a bank run?
    A bank run occurs when many depositors simultaneously try to withdraw their money because they fear the bank will fail.
  • How many members are on the Federal Reserve Board of Governors and how are they appointed?
    There are 7 members on the Board of Governors, appointed by the President of the United States and confirmed by the Senate.
  • How long is the term for a member of the Board of Governors?
    Each member of the Board of Governors serves a 14-year term.
  • Who leads the Board of Governors and how long is their term?
    The chairperson leads the Board of Governors and serves a 4-year term, which may be renewed.
  • How many regional Federal Reserve Banks are there and where are they located?
    There are 12 regional Federal Reserve Banks, each located in a major city across the United States.
  • What is the Federal Open Market Committee (FOMC) and what does it do?
    The FOMC is the part of the Fed that makes decisions about increasing or decreasing the money supply through monetary policy.
  • Who makes up the FOMC?
    The FOMC consists of all 7 members of the Board of Governors and 5 rotating presidents from the regional Federal Reserve Banks.
  • How often does the FOMC meet to discuss monetary policy?
    The FOMC meets approximately every 6 weeks to discuss and set monetary policy.
  • What are the two main roles of the Federal Reserve?
    The Fed regulates banks to ensure the health of the banking system and controls the money supply through monetary policy.
  • What does it mean that the Fed is the 'lender of last resort'?
    It means the Fed can make loans to banks in trouble to prevent them from failing when no other lender is available.
  • What is a discount loan?
    A discount loan is a loan made by the Fed to a bank, typically at the discount rate, which is the lowest possible rate.
  • What is the federal funds rate?
    The federal funds rate is the interest rate at which banks lend to each other overnight, usually just above the discount rate.
  • What are the main tools the Fed uses to conduct monetary policy?
    The Fed uses open market operations, changes in the discount rate, and adjustments to reserve requirements to conduct monetary policy.
  • What are open market operations?
    Open market operations involve the buying and selling of securities by the Fed to control the amount of money available in the economy.