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

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Question 61

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The reserve requirement represents the interest rate charged by the Federal Reserve for government-guaranteed student loans.

A) True
B) False

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Question 62

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To decrease the money supply, the Federal Reserve sells U.S. government bonds in open-market operations.

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B) False

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Question 63

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Last week Dave was looking for a place to deposit a $30,000 inheritance from his Great Aunt Martha, who passed away three months ago. He does not plan to spend his money frivolously. He will need part of the funds from time to time for his college education, which he promised Great Aunt Martha he would complete. After speaking with several sales consultants in banking and nonbank institutions, he likes the fact that he can open a stock brokerage account and a money-market account at Goodman Stacks Investment Company (a nonbank company), and will be issued checks for paying bills. You remind him that with the recent mergers between banking and nonbank institutions, he may be able to find a company that provides (both) the convenience of banking services (ATM, cash availability) and low-risk/high-risk securities products.

If the Fed increases interest rates in the U.S. relative to other nations:

As is common payroll procedure for most employers, Marissa's company _____________ her paycheck bi-monthly into her checking account. This is a paperless process and no check is issued to the employee. By logging into her personnel system, Marissa has record of the net pay that was deposited into her personal checking account and an account of how much was taken out for taxes, Medicare, social security (FICA) and other deductions. Marissa's company has adopted an efficient _________ system

The Federal Reserve, which was established in 1907 was to be a "lender of last resort," loans money to small businesses that are unable to obtain loans through private banks.

As a relatively poor nation, Liberia wants to obtain funds for a project to improve the availability of water and electricity. Liberia should contact the International Monetary Fund.

Today, a regular _____________ is a system where you can exchange goods for other goods. You submit your goods and you receive trade credit that you can use to buy other goods

When the Federal Reserve wants to increase the money supply, they decrease the reserve requirement.

After Bob and Jillian deposited nearly $30,000 in a savings account at Farmers National Bank, the bank failed and filed for bankruptcy. Because the Farmers National Bank was an FDIC member bank, Bob and Jillian:

Created during the Great Depression, the federal deposit insurance program resulted in a large number of bank failures.

The __________ insures deposits held in credit unions

When the value of the dollar falls, foreign goods become less expensive for American consumers.

The M-1 definition of the money supply includes travelers' checks.

When Mrs. Sweet exchanges her famous chocolate chip cookies for the lawn care services of her neighbor, she engages in a barter transaction.

Which of the following represents a benefit of coins over paper money?

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

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

Bank crises tend to correlate with economic recessions.

The rate of interest charged by the Federal Reserve is called the federal funds rate.