Question 1

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.

Accepted Answer

This statement is true. The Fed may use open-market operations to buy government securities as a strategy to help stimulate the economy during a recession.

Question 2

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.

Accepted Answer

Bigbux Bank can borrow from the Fed at the discount rate, but they can charge their customers a higher interest rate on new loans.

Question 3

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

Accepted Answer

The answer of Thomas Jefferson proposed the establishment of the...

Question 4

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

Accepted Answer

The answer of Early in our nation's history, people generally...

Question 5

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.

Accepted Answer

The answer of Bigbux Bank holds $300 million in deposits...

Question 6

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.

Accepted Answer

The answer of When the value of the dollar increases...

Question 7

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.

Accepted Answer

The Federal Reserve's reduction in the discount rate and reserve requirement indicate that they are trying to increase the money supply, not decrease it. By lowering the discount rate, it becomes cheaper for banks to borrow from the Fed, which encourages them to lend more money to consumers and businesses. Similarly, by lowering the reserve requirement, banks are required to hold less money in reserve, freeing up more of their funds to lend out. These actions typically lead to an increase in the money supply.

Question 8

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.

Accepted Answer

An increase in money supply can actually help prevent a recession by stimulating economic activity. It is not necessarily a sign of an impending recession.

Question 9

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

Accepted Answer

The answer of The United States first established a central...

Question 10

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.

Accepted Answer

An increase in the discount rate means that borrowing money from the Fed will become more expensive, not easier. This will make it harder for Sean to borrow money for his new equipment.

Question 11

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.

Accepted Answer

If the dollar has strength against the Japanese yen, then Spokes Bicycles' bicycles will become more expensive for Japanese consumers. This may lead to decreased demand for their products in the Japanese market.

Question 12

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

Accepted Answer

The answer of When the U.S. was still a colony...

Question 13

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

Accepted Answer

This is true. Banks were allowed to issue their own banknotes, which could vary in value and were not always backed by gold or silver. This led to a lot of confusion and instability in the American economy, and the federal government eventually established a national currency and banking system in the 1860s.

Question 14

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

Accepted Answer

The US banking system was not considered efficient during the Civil War era. The system was fragmented and lacked a central banking authority until the creation of the Federal Reserve in 1913.

Question 15

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.

Accepted Answer

With the reduction of the reserve requirement, Bigbux Bank's required reserves will now be $78 million, which is 12% of the bank's deposits ($650 million). Therefore, the bank will need to hold more reserves and may need to become more conservative with its lending procedures.

Question 16

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

Accepted Answer

The statement is correct.

Question 17

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.

Accepted Answer

Restricting the growth of money supply can help reduce inflationary pressures by limiting the amount of money in circulation and preventing demand-pull inflation. When there is too much money chasing too few goods, prices rise. By reducing the growth of money supply, the government can help keep prices stable and prevent inflation from spiraling out of control.

Question 18

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

Accepted Answer

This is true, as one of the main functions of a central bank is to act as a lender of last resort for individual banks. The central bank allows banks to deposit excess funds and also provides short-term loans to banks that are experiencing liquidity problems.

Question 19

Alexander Hamilton persuaded Congress to create a central bank.

Accepted Answer

Alexander Hamilton was a strong proponent of a central bank and successfully convinced Congress to create the First Bank of the United States in 1791.

Question 20

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

Accepted Answer

The United States had two unsuccessful attempts at a central bank prior to the Civil War: the First Bank of the United States (1791-1811) and the Second Bank of the United States (1816-1836).

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