Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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.

Accepted Answer

A) True 
 B)False

Question 3

While credit cards increase the number of checks written,they lower the costs of processing those checks.

Accepted Answer

A) True 
 B)False

Question 4

Commercial banks operate as nonprofit institutions.

Accepted Answer

A) True 
 B)False

Question 5

Herb has $20,000 in an interest-bearing time deposit with the Applebottom Bank and Trust Company.While earning a relatively attractive rate of interest,Herb had to agree to not withdraw any of the funds until the end of a three-year period.Herb's investment represents an) :

Accepted Answer

A)  passbook savings account.
B)  negotiable order of withdrawal NOW) account.
C)  individual deferred earnings account IDE
A)  .
D)  certificate of deposit C
D)  .E) A) and D)
F) All of the above

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

How did the Fed contribute to the recent banking crisis?

Accepted Answer

A)  As the regulator of monetary policy,the Fed kept interest rates suppressed.
B)  As the regulator of monetary policy,the Fed ignored the warnings of Moody's and other bond rating agencies.
C)  The Fed required banks to create adjustable rate mortgages with interest rates significantly higher than those attached to fixed-rate mortgages.
D)  The Fed encouraged home ownership.E) All of the above
F) A) and B)

Question 9

The Fed plans to raise the discount rate to 6%.This indicates that:

Accepted Answer

A)  banks borrowing funds from the Fed will now pay 6% on the amount they borrow.
B)  banks must hold funds in their vault or on deposit with the Fed equal to at least 6% of their deposits.
C)  the Fed will pay 6% 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 6% greater than the amount of gold held in reserve by the government.E) B) and D)
F) B) and C)

Question 10

Open-market operations involve:

Accepted Answer

A)  monitoring the reserve requirement.
B)  the buying and selling of bonds.
C)  increasing and decreasing interest rates.
D)  participating with the IMF.E) All of the above
F) A) and C)

Question 11

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

A)  $12 million
B)  $24 million
C)  $176 million
D)  $200 millionE) None of the above
F) A) and D)

Question 12

__________ represents the most commonly used definition of the money supply.

Accepted Answer

A)  M-1
B)  M-2
C)  M-3
D)  LE) C) and D)
F) B) and C)

Question 13

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

Accepted Answer

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

Question 14

The redesign and new colors added to U.S.paper money is intended to:

Accepted Answer

A)  make the currency more difficult to counterfeit.
B)  increase the use of the barter system.
C)  improve the durability of our monetary system.
D)  increase the portability of our money.E) B) and C)
F) None of the above

Question 15

All federally chartered banks are members of the Federal Reserve.

Accepted Answer

A) True 
 B)False

Question 16

When a customer purchases an item with a debit card:

Accepted Answer

A)  they actually are taking out a short-term loan with 30 days to pay before any interest is charged.
B)  the payment flows first through an electronic clearinghouse which then sends the customer a bill.
C)  the transaction duplicates the process of a credit card.
D)  the funds are automatically transferred from the customer's account to the store's account.E) None of the above
F) All of the above

Question 17

The Bank of Bramblewood would like to increase its loans to customers,but it is currently mandated by a high reserve rate.As a Federal Reserve member bank,it will borrow additional funds from the Fed and charge its customers an interest rate that is higher than the ________________.

Accepted Answer

A)  reserve rate
B)  federal funds rate
C)  discount rate
D)  prime rateE) C) and D)
F) A) and D)

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

The ________ provides the same results as a check because it withdraws funds from a checking account.

Accepted Answer

A)  credit card
B)  debit card
C)  smart card
D)  cashier's checkE) None of the above
F) B) and C)

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

__________ represents the most commonly used definition of the money supply.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

How did the Fed contribute to the recent banking crisis?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Open-market operations involve:

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Commercial banks operate as nonprofit institutions.

Correct AnswerverifiedShow Answer

The ________ provides the same results as a check because it withdraws funds from a checking account.

Correct AnswerverifiedShow Answer

Herb has $20,000 in an interest-bearing time deposit with the Applebottom Bank and Trust Company.While earning a relatively attractive rate of interest,Herb had to agree to not withdraw any of the funds until the end of a three-year period.Herb's investment represents an) :

Correct AnswerverifiedShow Answer

All federally chartered banks are members of the Federal Reserve.

Correct AnswerverifiedShow Answer

The Fed plans to raise the discount rate to 6%.This indicates that:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The redesign and new colors added to U.S.paper money is intended to:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When a customer purchases an item with a debit card:

Correct AnswerverifiedShow Answer

The Bank of Bramblewood would like to increase its loans to customers,but it is currently mandated by a high reserve rate.As a Federal Reserve member bank,it will borrow additional funds from the Fed and charge its customers an interest rate that is higher than the ________________.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

While credit cards increase the number of checks written,they lower the costs of processing those checks.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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