Deck 20: Money, Financial Institutions, and the Federal Reserve

Question 1

Electronic money is a newer form of money.

Answer 1

True

Question 2

The currencies of some countries, although durable and portable, are relatively unstable, which makes international exchanges difficult.

Answer 2

True
Explanation:The currencies of other nations are not always equally stable, even though they may be equally portable, divisible, and durable.

Question 3

Companies are now developing ways to send money across international boundaries using e-money.

Answer 3

True

Question 4

Money is anything people generally accept as payment for goods and services.

Question 5

Barter involves the use of electronic payment systems, like PayPal, for online transactions.

Question 6

A barter exchange is a system where you input into a system the goods and services that you are willing to trade, and receive trade credit.

Question 7

The problem with barter exchanges is that it is too difficult to find people to exchange your good with.

Question 8

The strength of the U.S. money system rests on the silver content of the coins.

Question 9

Coins and bills are portable and durable.

Question 10

The size and strength of the U.S. economy insulates U.S. businesses from the economic problems of other countries.

Question 11

Trading internationally by using money appears easy and almost effortless, but the fact is there is a very complex banking system that makes it happen.

Question 12

Barter is the trading of goods and services for other goods and services.

Question 13

Efficient monetary systems eliminate the use of barter.

Question 14

The U.S. government has done its best to create dollar bills that are easily duplicated.

Question 15

Historically, coins and paper money complicated the exchange process.

Question 16

The president of the U.S. is in control of the money supply in the U.S.

Question 17

Economic growth and the creation of jobs depend on the availability of money.

Question 18

Economic events in other nations seldom impact the powerful U.S. economy.

Question 19

Printed dollars are made with various lines of colors such as peach and blue. They have art work that is off-center, and there are other identifiable watermarks for the purpose of making replication quite easy.

Question 20

Most countries restrict the flow of money in and out of their borders.

Question 21

When Natalia exchanges her famous chocolate chip cookies for the lawn care services of her neighbor, she engages in a barter transaction.

Question 22

Theoretically, with the proper monetary policy, the U.S. economy can continue to grow without causing inflation.

Question 23

Open-market operations is the buying and selling of government securities by the Federal Reserve Board.

Question 24

A significant increase in the money supply creates inflationary pressures in the economy.

Question 25

The strength of the U.S. dollar depends on the strength of the U.S. economy relative to the economies of other nations.

Question 26

The president of the United States appoints the members of the Federal Reserve's board of governors.

Question 27

When the value of the dollar falls, foreign goods become less expensive for American consumers.

Question 28

The Federal Reserve establishes the tax policies of the U.S.

Question 29

Inflation occurs in an economy with too little money chasing too many goods.

Question 30

Both the M-1 and M-2 definitions of money include coins and paper money.

Question 31

The M-1 definition of the money supply includes travelers' checks.

Question 32

The M-3 includes M-1 money, but not M-2 money.

Question 33

The U.S. production of the Sacagawea dollar coins provides greater durability than paper dollar bills.

Question 34

The money supply represents the amount of money the Federal Reserve Bank makes available for people to buy goods and services.

Question 35

M-2 represents the most commonly used definition of the money supply.

Question 36

The M-1 money supply includes money in savings accounts, mutual funds, and money market accounts.

Question 37

Citizens of the island nation of Winstone readily accept a specific type of seashell as payment for the goods and services they trade. For Winstonians, seashells serve as money.

Question 38

Changes in the money supply produce little or no change in inflation, employment, and economic growth.

Question 39

The Federal Reserve consists of seven Federal Reserve districts.

Question 40

According to the Adapting to Change box, a Harvard professor is suggesting we should carry around more large bills, like $50s and $100s, in our wallets.

Question 41

To decrease the money supply, the Federal Reserve sells U.S. government bonds in open-market operations.

Question 42

When the Fed increases the reserve requirement, banks make fewer loans.

Question 43

To decrease the money supply, the Federal Reserve sells U.S. government bonds in open-market operations.

Question 44

When the value of the euro increases compared to the U.S. dollar, the price of U.S. exports to Europe will decrease.

Question 45

When the Fed sells U.S. government securities, the U.S. money supply increases.

Question 46

The reserve requirement represents the interest rate charged by the Federal Reserve for government-guaranteed student loans.

Question 47

The federal funds rate is the interest rate that banks charge each other.

Question 48

The rate of interest charged by the Federal Reserve is called the federal funds rate.

Question 49

The electronic transfer of money increases the Federal Reserve's check-clearing operations.

Question 50

The goal of Federal Reserve monetary policy is to affect the level of competition in the U.S. banking system.

Question 51

The three basic tools the Fed uses to manage the money supply are reserve requirements, open-market operations, and the discount rate.

Question 52

When the Federal Reserve wants to increase the money supply, they decrease the reserve requirement.

Question 53

An increase in the discount rate produces a decrease in money supply.

Question 54

When the Federal Reserve acts to reduce inflation, they decrease the reserve requirement.

Question 55

To reduce inflation, the Federal Reserve increases the discount rate.

Question 56

By reducing the reserve requirement, the Fed intends to increase the money supply.

Question 57

When the Fed increases the reserve requirement it forces banks to increase the number of loans they make.

Question 58

The reserve requirement represents the Fed's most powerful tool for conducting monetary policy.

Question 59

The Fed commonly buys or sells U.S. government securities to regulate the money supply.

Question 60

The Federal Reserve assists in the processing of checks between banks.

Question 61

Early in our nation's history, people generally accepted the importance of a central bank authority.

Question 62

By the time of the Civil War, the efficient banking system of the United States was the envy of the rest of the world.

Question 63

Thomas Jefferson proposed the establishment of the first central bank in the United States.

Question 64

A series of bank failures and a cash shortage in 1907 led to the establishment of the Federal Reserve System in 1913.

Question 65

In the early 1800s, the United States allowed banks to issue different kinds of currencies.

Question 66

The U.S. government is concerned about inflationary pressures that seem to be building within the nation. Restricting the growth of money supply provides an effective strategy to reduce these inflationary pressures.

Question 67

Prior to the Civil War, the United States had two unsuccessful attempts at a central bank.

Question 68

A central bank allows individual banks to deposit and to borrow funds.

Question 69

Yesterday it was reported that the U.S. was clearly experiencing an economic downturn. A strategy the Fed may enact if the nation is facing recession is to buy government securities in open-market operations.

Question 70

Great news! The Fed just announced that the discount rate will rise by as much as 1% over the next three months. This will make it easier for Sean, the owner of a laser engraving business, to borrow money for that new piece of equipment he needs.

Question 71

When the value of the dollar increases relative to the euro, the number of U.S. dollars needed to purchase a block of Dutch cheese increases.

Question 72

Alexander Hamilton persuaded Congress to create a central bank.

Question 73

If the owners of Spokes Bicycles are trying to sell state-of-the-art bicycles into the Japanese market, they are likely to sell more bicycles if the dollar has strength against the Japanese yen.

Question 74

The Fed has just reduced the reserve requirement from 14% to 12%. Bigbux Bank holds $650 million in deposits. It will need to become more conservative with its lending procedures because it now must hold $78 million in reserves.

Question 75

Bigbux Bank holds $300 million in deposits from their customers. If the Fed sets the reserve requirement at 12 percent, Springfield must hold $24 million in cash at the bank or in non-interest-bearing deposits at the local Federal Reserve district bank.

Question 76

Newspapers in the nation of Hasalot report a significant increase in money supply during the past few months. This information indicates that Hasalot may experience a serious recession in the near future.

Question 77

The United States first established a central bank in 1913 by establishing the Federal Reserve System.

Question 78

Recently, the Fed announced a reduction in the discount rate and the reserve requirement. These actions clearly suggest that the Fed intends to decrease the money supply.

Question 79

Next month, Bigbux Bank plans to increase the amount of new loans it makes. As a member bank of the Federal Reserve, Commerce can borrow from the Fed. Bigbux will charge the customer an interest amount greater than the discount rate.

Question 80

When the U.S. was still a colony of Great Britain, land banks were created to lend money to farmers.