Question 1

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

Accepted Answer

A)   decrease the size of the national debt.
B)   improve its financial position by investing in relatively safe interest-earning assets.
C)   stimulate the economy by increasing the amount of money in circulation.
D)   drive up interest rates to cool off inflationary pressures.E) All of the above
F) None of the above

Question 2

A(n)  ________ allows money to be exchanged electronically more quickly and more economically than with paper checks.

Accepted Answer

A)   electronic check conversion (EC
C)  
B)   electronic funds transfer system (EFT) 
C)   virtual banking operation (VBO) 
D)   telechecking system (TEL
E)  E) A) and D)
F) A) and C)

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Banks prefer that customers use an electronic funds transfer system rather than traditional methods of payment because

Accepted Answer

A)   traditional payments are subject to regulation by the Fed and electronic transactions are not.
B)   electronic funds are subject to a smaller reserve requirement than traditional funds.
C)   electronic funds transfer is more efficient and less expensive for banks than traditional check-based payments.
D)   the bank generates advertising revenue from its website.E) B) and C)
F) All of the above

Question 5

A rapid increase in the money supply may lead to a(n)

Accepted Answer

A)   increase in the rate of inflation.
B)   recession.
C)   decrease in interest rates.
D)   decrease in spending by consumers and businesses.E) A) and B)
F) A) and C)

Question 6

Payroll debit cards

Accepted Answer

A)   are protected if lost or stolen.
B)   have limited use because they can only act as a credit card, and the recipient does not have access to cash.
C)   must go through the Federal Reserve's Automated Clearing House system.
D)   can be issued to persons without bank accounts who can use them to pay bills online, or access cash from an ATM.E) B) and C)
F) A) and D)

Question 7

The global money markets trade about $5 trillion every day.

Accepted Answer

A) True 
 B)False

Question 8

The ability to access funds without a penalty helps to explain why certificates of deposit (CDs) have gained popularity among conservative investors and savers.

Accepted Answer

A) True 
 B)False

Question 9

The Fed plans to raise the discount rate to 7%. This indicates that

Accepted Answer

A)   banks borrowing funds from the Fed will now pay 7% on the amount they borrow.
B)   banks must hold funds in their vault or on deposit with the Fed equal to at least 7% of their deposits.
C)   the Fed will pay 7% on any securities issued by the federal government during the current time period.
D)   the amount of money in circulation can be no more than 7% greater than the amount of gold held in reserve by the government.E) A) and B)
F) None of the above

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

Nora is 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 Nora's job are true?

Accepted Answer

A)   She works for a bank.
B)   She will probably invest most of the pension's funds in safe corporate stocks and other conservative investments such as government securities.
C)   In order to qualify for maximum tax benefits, the funds Nora invests all must be contributed by the companies who employ members of the Teamsters Union, rather than by the union members themselves.
D)   The purpose of the investments Nora is making is to increase the current pay of union members.E) A) and B)
F) A) and C)

Question 12

Under the Federal Reserve Act of 1913,

Accepted Answer

A)   membership in the Federal Reserve System was made voluntary for all banks.
B)   federally chartered banks were required to join the Federal Reserve System.
C)   membership in the Federal Reserve System was required of all banks that had deposits of more than $1 million.
D)   all banks were required to hold reserves equal to at least 50 percent of their deposits.E) B) and D)
F) B) and C)

Question 13

Everything else held constant, an international bank based in San Francisco would prefer to loan money to an efficient firm operating in Amsterdam, Holland, than an inefficient firm operating in New York.

Accepted Answer

A) True 
 B)False

Question 14

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

A)   the size of the federal deficit.
B)   unemployment.
C)   excessively high interest rates.
D)   inflation.E) B) and C)
F) A) and B)

Question 15

Given the size and strength of the U.S. economy and the widespread use of the dollar, the Federal Reserve essentially regulates international monetary markets.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following institutions primarily finances economic development projects in less-developed countries?

Accepted Answer

A)   International Monetary Fund
B)   World Bank
C)   International Development Administration
D)   International Reserve BankE) C) and D)
F) B) and C)

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

When the value of the U.S. dollar increases relative to other currencies,

Accepted Answer

A)   the rate of inflation increases.
B)   the size of the national debt decreases.
C)   foreign goods become less expensive to U.S. consumers.
D)   U.S. goods become less expensive to foreign buyers.E) C) and D)
F) A) and B)

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Today's consumers have fewer options and less flexibility as a result of increased regulation of the banking industry.

Accepted Answer

A) True 
 B)False

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

Given the size and strength of the U.S. economy and the widespread use of the dollar, the Federal Reserve essentially regulates international monetary markets.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Payroll debit cards

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Nora is 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 Nora's job are true?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the value of the U.S. dollar increases relative to other currencies,

Correct AnswerverifiedShow Answer

A(n) ________ allows money to be exchanged electronically more quickly and more economically than with paper checks.

Correct AnswerverifiedShow Answer

Today's consumers have fewer options and less flexibility as a result of increased regulation of the banking industry.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following institutions primarily finances economic development projects in less-developed countries?

Correct AnswerverifiedShow Answer

Banks prefer that customers use an electronic funds transfer system rather than traditional methods of payment because

Correct AnswerverifiedShow Answer

A rapid increase in the money supply may lead to a(n)

Correct AnswerverifiedShow Answer

Everything else held constant, an international bank based in San Francisco would prefer to loan money to an efficient firm operating in Amsterdam, Holland, than an inefficient firm operating in New York.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Fed plans to raise the discount rate to 7%. This indicates that

Correct AnswerverifiedShow Answer

The global money markets trade about $5 trillion every day.

Correct AnswerverifiedShow Answer

Under the Federal Reserve Act of 1913,

Correct AnswerverifiedShow Answer

The ability to access funds without a penalty helps to explain why certificates of deposit (CDs) have gained popularity among conservative investors and savers.

Correct AnswerverifiedShow Answer

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