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Chapter 20

Chapter 20. Understanding Money, Financial Institutions, and the Federal Reserve CPS questions. 1. Which of these occurs when goods are traded directly for other goods?. Barter Direct exchange Direct marketing Credit.

josiah-hester
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Chapter 20

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  1. Chapter 20 Understanding Money, Financial Institutions, and the Federal Reserve CPS questions

  2. 1. Which of these occurs when goods are traded directly for other goods? • Barter • Direct exchange • Direct marketing • Credit

  3. 2. Using heavy or bulky items as money fails to achieve which characteristic of useful money? • Durability • Stability • Portability • Transferability

  4. 3. Peter owns an export business. After traveling to France on numerous occasions, he developed a taste for fine French wines. Peter has just heard a report on the radio that indicates that the dollar has risen dramatically relative to the euro. Based on this information, what should Peter expect? • American goods will become less expensive in France. • French wines will become less expensive in the United States. • French wines will become more expensive in the United States. • The French government will place an embargo on American exports.

  5. 4. _____ is the most commonly used tool of monetary policy. • The reserve requirement • Open-market operations • Margin requirements • The discount rate

  6. 5. What happens when the Fed buys U.S. government securities? • Size of the federal deficit falls • Discount rate rises • Money supply increases • Banking system loses reserves

  7. 6. The Fed plans to raise the discount rate to 6%. What does this indicate? • Banks borrowing funds from the Fed will now pay 6% on the amount they borrow. • Banks must hold funds in their vault or on deposit with the Fed equal to at least 6% of their deposits. • The Fed will pay 6% on any securities issued by the federal government during the current time period. • The amount of money in circulation can be no more than 6% greater than the amount of gold held in reserve by the government.

  8. 7. The U.S. banking system operated ______ by the time of the civil war. • as an efficient model that many other countries copied • under the control of the first Federal Reserve System • inefficiently with different banks issuing different types of currencies • much the same as it does today

  9. 8. When it loans funds to_____ the Federal Reserve fulfills its role as a "lender of last resort“. • small businesses that are unable to obtain loans from other sources • banks during banking emergencies • major corporations that are on the verge of bankruptcy • the federal government when deficits exceed borrowing limits set by Congress

  10. 9. Which of the following supports the statement that the Federal Reserve represents a "banker's bank“? • It was created as a central clearinghouse for the transactions of the largest banks. • Commercial banks compete with the Fed for business customers. • It lobbies Congress in support of banking reform legislation. • It holds the deposits of commercial banks and makes loans to banks that need additional funds.

  11. 10. Which of the following represents an interest-earning checking account? • Certificate of deposit • Passbook account • Discount deposit • NOW account

  12. 11. What does a comparison of a NOW account and a savings account reveals? • While a NOW account pays interest, a savings account does not. • A NOW account must be held to maturity, while funds in a savings account are available on demand. • Deposits in NOW accounts are demand deposits, but deposits in savings accounts are time deposits. • Interest earned on NOW accounts is tax deductible, while interest earned on passbook savings accounts is taxable income.

  13. 12. Shauna works as an investment specialist for the Teamsters Union Central States Pension Fund. Her job involves deciding how to invest the contributions paid into the fund. Which of the following statements about the Shauna's job are true? • She works for a bank. • She will probably invest most of the pension's funds in safe corporate stocks and other conservative investments such as government securities. • In order to qualify for maximum tax benefits, the funds Shauna invests all must be contributed by the companies who employ members of the Teamsters Union, rather than by the union members themselves. • The purpose of the investments Shauna is making is to increase the current pay of union members.

  14. 13. Which of the following insures holders of accounts in savings and loan associations? • Savings Association Insurance Fund • Federal Savings Protection Agency • Savings and Loan Assurance Corporation • National Savings Deposit Insurance Cooperative

  15. 14. What was the purpose of creating the FDIC and the FSLIC? • To restore confidence in banking institutions. • To serve as clearinghouses for transactions involving commercial banks and savings and loans. • To provide federally guaranteed insurance to small businesses at low cost. • To help the Federal Reserve enforce reserve requirements.

  16. 15. After Ken and Nancy deposited nearly $30,000 in a savings account at Farmers National Bank, the bank failed and filed for bankruptcy. Because the Farmers National Bank participates in the FDIC, Ken and Nancy: • can relax because their account is fully insured by the FDIC. • can recover up to $20,000, but they will probably lose the rest since their deposits exceed the maximum coverage offered by the FDIC. • will lose their savings because the FDIC only insures business deposits. • will be eligible to recover 80 percent of the value of their deposit, less a $2,500 deductible.

  17. 16. ______ allowed banks, insurance companies, and securities brokers to combine and sell each other's services. • Glass-Steagall Act • Gramm-Leach-Bliley Act • Wagner Act • Sherman Act

  18. 17. Which of the following is a likely result of legislation that allows banks, insurance companies, and securities brokers to combine and compete with one another? • A deteriorating customer service • A higher prices for financial services • A higher levels of customer service • A decrease in the electronic transfer of funds

  19. 18. Which of these primarily provides for the financing of economic development projects throughout the world? • International Monetary Fund • International Reserve Bank • World Bank • World Development Authority

  20. 19. ______ monitors the monetary policies of member nations to ensure a global monetary system that works best for all nations. • the International Monetary Fund • the World Bank • the International Development Administration • the International Reserve Bank

  21. 20. The Fed announces that it intends to implement policies to increase interest rates. Which of these correctly identifies the most likely result of higher U.S. interest rates? • More money will flow into the United States from foreign investors • The economy will experience an increase in business investment spending • The value of the dollar will fall relative to other currencies • The rate of inflation will increase

  22. Answer: A LG: 1 Page: 546 • Answer: C LG: 1 Page: 546 • Answer: B LG: 1 Page: 548 • Answer: B LG: 2 Page: 550 • Answer: C LG: 2 Page: 550 • Answer: A LG: 2 Page: 551 • Answer: C LG: 3 Page: 553 • Answer: B LG: 3 Page: 553 • Answer: D LG: 3 Page: 553 • Answer: D LG: 4 Page: 554 • Answer: C LG: 4 Page: 554 – 555 • Answer: B LG: 4 Page: 558 • Answer: A LG: 5 Page: 559 • Answer: A LG: 5 Page: 559 • Answer: A LG: 5 Page: 559 • Answer: B LG: 6 Page: 560 • Answer: C LG: 6 Page: 560 • Answer: C LG: 7 Page: 564 • Answer: A LG: 7 Page: 564 – 565 • Answer: A LG: 7 Page: 563

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