Question 1

The Fed bought several billion dollars worth of U.S. government securities. The purpose of this action is to:

Accepted Answer

The answer of The Fed bought several billion dollars worth...

Question 2

By the time of the Civil War, the U.S. banking system operated:

Accepted Answer

Prior to the Civil War, the U.S. banking system was decentralized and consisted of many different banks issuing their own currencies, which often led to inefficiencies and confusion. It wasn't until the National Banking Act was passed in 1863, during the Civil War, that a more centralized banking system was established. Therefore, option C is the correct choice. Options A, B, and D are incorrect as they do not accurately reflect the state of the U.S. banking system during the Civil War.

Question 3

persuaded Congress to establish the first central bank in the United States.

Accepted Answer

Alexander Hamilton was a key figure in the establishment of the first central bank in the United States. He argued for the creation of the bank in his 1790 "Report on a National Bank," which persuaded Congress to pass the necessary legislation.

Question 4

The Federal Reserve represents a "banker's bank" because:

Accepted Answer

The Federal Reserve holds the deposits of commercial banks and makes loans to banks that need additional funds. This function makes the Federal Reserve a "banker's bank" where other banks can turn to for loans and deposit services.

Question 5

The Megabux National Bank currently has deposits of $200 million. If the Fed establishes a reserve requirement of 12 percent, Megabux National must hold reserves of against its deposits.

Accepted Answer

The reserve requirement is the percentage of deposits that a bank must hold as reserves. In this case, Megabux National Bank has deposits of $200 million and a reserve requirement of 12 percent. Therefore, they must hold reserves of 0.12 x $200 million = $24 million.

Question 6

The banking panic of 1907 and the resulting cash shortage led to the formation of the:

Accepted Answer

The banking panic of 1907 highlighted the need for a more stable banking system and the government's ability to intervene in times of crisis. As a result, the Federal Reserve System was created in 1913 to act as a central bank and prevent future financial crises.

Question 7

News reports indicate that the Fed plans to announce its third increase in the discount rate in the past five months. Additional reports suggest that the Fed may also increase the reserve requirement in the near future. Apparently the Fed perceives the number one problem facing the economy is:

Accepted Answer

The fact that the Fed is planning to increase both the discount rate and reserve requirement suggests that their main concern is inflation, which can be controlled by raising interest rates and reducing the money supply. The size of the federal deficit and unemployment are important economic issues, but they are not the primary focus of the Fed's current actions.

Question 8

Which of the following historical events motivated Congress to establish the Federal Reserve System?

Accepted Answer

The banking panic and cash shortage of 1907 motivated Congress to establish the Federal Reserve System. The panic exposed weaknesses in the nation's banking system, and there was a need for a central bank to provide stability and prevent future panics.

Question 9

The Federal Reserve fulfills its role as a "lender of last resort" when it loans funds to:

Accepted Answer

The role of a "lender of last resort" refers to a central bank's role in providing liquidity to banks during times of financial crises or emergencies. Therefore, the Federal Reserve loans funds to banks during banking emergencies.

Question 10

Historically, there was a central bank in the U.S.

Accepted Answer

There was actually a lot of resistance to the idea of a central bank in the U.S. during its early history. This was reflected in the debates between the Federalists and Anti-Federalists, as well as the opposition of Thomas Jefferson and Andrew Jackson to the Second Bank of the United States.

Question 11

One of the most important aspects of the banking legislation passed during the 1930s established:

Accepted Answer

The establishment of federal deposit insurance was a crucial aspect of banking legislation during the 1930s because it protected depositors from losing their savings if a bank failed. This helped restore confidence in the banking system and prevent bank runs, which had been a major problem during the Great Depression. The other options listed were already in place before the 1930s, or were not as significant in addressing the banking crisis of that era.

Question 12

A is a profit-seeking organization that receives deposits from individuals and corporations and uses some of these deposits to make loans.

Accepted Answer

Commercial banks are profit-seeking organizations that receive deposits from individuals and corporations and use some of these deposits to make loans. Credit unions are not-for-profit organizations that serve specific groups of people, such as employees of the same company or members of the same community. The Federal Reserve Bank is a central bank that regulates the nation's monetary policy. Consumer finance companies specialize in making loans to high-risk borrowers at high interest rates.

Question 13

Chipper's Golf Resort plans to use famous Kauri wood from New Zealand for parts of the interior of the magnificent club house at its new golf resort near Portland, OR. According to the importer, each ten foot slab will cost Chipper's approximately $5,000. Looking at the exchange rates, Chipper's finance director noted that $500 US dollars = $738 NZ dollars. The importer will order directly from his source in New Zealand. Chipper's finance director has determined that:

Accepted Answer

The answer of Chipper's Golf Resort plans to use famous...

Question 14

As a response to the bank failures of the , a system of federal deposit insurance was established to strengthen the banking system.

Accepted Answer

The establishment of federal deposit insurance was a response to the bank failures of the Great Depression, which led to widespread public distrust in the banking system. The Federal Deposit Insurance Corporation (FDIC) was created in 1933 to insure deposits in banks and restore confidence in the banking system. The other choices do not accurately describe the historical context in which the FDIC was established.

Question 15

Early settlers of the New World relied heavily on barter because:

Accepted Answer

Strict laws and regulations, such as the British Navigation Acts, limited the amount of currency that could be brought into the colonies, making barter a necessary means of exchange.

Question 16

President Dude, the leader of the island nation of Jaylo, refuses to raise taxes, but wants to expand many government services and increase the size of the Jaylo armed forces. He plans to pay for all of the desired expenditures by printing more money. If President Dude carries out his plan by rapidly increasing the supply of money, Jaylo will likely experience:

Accepted Answer

Increasing the supply of money without a corresponding increase in the production of goods and services will lead to an increase in the overall price level, also known as inflation. This will reduce the purchasing power of the currency and cause prices to rise, making it more expensive for consumers to buy goods and services, which can harm the economy in the long run.

Question 17

To stimulate the economy during a recession, the Fed would:

Accepted Answer

To stimulate the economy during a recession, the Fed would typically reduce the reserve requirement. This encourages banks to lend out more money, which in turn increases the money supply and stimulates economic activity. Cutting taxes or selling government securities could also potentially stimulate the economy, but these actions are typically taken by the government rather than the Fed. Increasing the discount rate, on the other hand, would actually slow down economic activity by making it more expensive for banks to borrow money from the Fed.

Question 18

When Mr. Smith in Quince Orchard, MD uses a check to buy a tractor from Mr. Brown in Austin, TX, different banks are involved in the transaction.

Accepted Answer

At least two banks are involved in this transaction - Mr. Smith's bank and Mr. Brown's bank. Additionally, the bank that Mr. Brown deposits the check into will also be involved, as well as the bank that Mr. Smith's bank sends the funds to. Therefore, there are at least four banks involved - Mr. Smith's bank, Mr. Brown's bank, Mr. Brown's deposit bank, and the bank receiving the funds from Mr. Smith's bank.

Question 19

Which of the following statements most accurately represents the history of U.S. banking?

Accepted Answer

The U.S. banking system has experienced a great deal of change and instability throughout its history, including periods of federal control and state control, the establishment of the Federal Reserve, and technological advancements.

Question 20

Which of the following represents the technical name for a checking account?

Accepted Answer

A demand deposit is the technical term for a checking account, as it refers to a deposit account where funds are available for withdrawal on demand. Free deposit is not a technical term and could refer to various types of accounts or promotions. Variable annuity and certificate of deposit are both types of investment accounts, not deposit accounts like a checking account.

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