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

Question 1

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

Answer 1

True

Question 2

Several European countries report a significant decrease in the level of jobs, income, and production of goods and services. The size and strength of the U.S. economy insulates U.S. businesses from the economic problems of other countries.

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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 5

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

Question 6

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 7

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

Question 8

Electronic cash is one of the newest forms of money.

Question 9

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

Question 10

Real 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 11

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

Question 12

Historically, coins and paper money complicated the exchange process.

Question 13

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

Question 14

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

Question 15

Coins and bills are portable and durable.

Question 16

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

Question 17

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

Question 18

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

Question 19

Efficient monetary systems eliminate the use of barter.

Question 20

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

Question 21

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

Question 22

According to the Adapting to Change box, it's hard to determine the exact value of Bitcoin.

Question 23

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

Question 24

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

Question 25

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

Question 26

The President of the U.S appoints the members of the Federal Reserve's board of governors.

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

The Federal Reserve consists of seven Federal Reserve districts.

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

The people living on the island nation of Wacki-ki readily accept a certain type of seashell as payment for the goods and services they trade. For Wackians (the name of Wacki-ki natives), seashells serve as money.

Question 40

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

Question 41

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

Question 42

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

Question 43

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

Question 44

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

Question 45

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

Question 46

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

Question 47

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

Question 48

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

Question 49

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

Question 50

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

Question 51

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

Question 52

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

Question 53

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

Question 54

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

Question 55

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

Question 56

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

Question 57

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

Question 58

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

Question 59

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

Question 60

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

Question 61

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

Question 62

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

Question 63

Yesterday it was reported that the U.S. is 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 64

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 65

The 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 66

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

Question 67

When the value of the dollar increases relative to the euro, the number of U.S. dollars needed to purchase a bottle of French wine decreases.

Question 68

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

Question 69

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

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 Ben, the owner of a laser engraving business, to borrow money for that new piece of equipment he needs.

Question 71

Next month, Commerce 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. Commerce will charge the customer an interest amount greater than the discount rate.

Question 72

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

Question 73

The Fed has just reduced the reserve requirement from 14% to 12%. Commerce Bank holds $650 million in deposits. It will need to become more conservative with its lending procedures because it now must hold $91 million in reserves.

Question 74

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

Question 75

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

Question 76

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 77

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

Question 78

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

Question 79

Alexander Hamilton persuaded Congress to create a central bank.

Question 80

Springfield National Bank holds $200 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.