Q&A Hero

Q: Adding interest to the principal and paying interest on the new total is called paying a. compound interest. b. simple interest. c. semiannual interest. d. total interest.

Q: Which of the following accounts is the MOST liquid? a. money market account b. certificate of deposit c. checking account d. savings account

Q: Which of the following accounts are you LEAST likely to encounter at a modern bank? a. checking account b. certificate of deposit c. money market account d. passbook savings account

Q: Which of the following is NOT a time deposit? a. savings account b. checking account c. money market account d. certificate of deposit

Q: What term best describes companies obtaining financing directly from capital markets (without using banks for financing)? a. rate chasers b. interbank transactions c. Check 21 d. disintermediation of funds

Q: The most common form of a transaction account is a a. savings account. b. checking account. c. money market account. d. certificate of deposit.

Q: A joint tenancy checking account allows each owner to make deposits and withdrawals independently. a. True b. False

Q: Banks are free to change governing documents, but they must give customers written notice of changes. a. True b. False

Q: In the United States, the government plays the greatest role in determining how money is moving. a. True b. False

Q: Money doesnt just mean currency, but also checks, ledger transfers, and even credit. a. True b. False

Q: Compound interest uses the same principal amount every time it is calculated. a. True b. False

Q: Principal is the price paid for using money. a. True b. False

Q: You cannot get your money from a certificate of deposit before the maturity date. a. True b. False

Q: Banks may require up to a seven-day notice from a depositor who wants to withdraw money from a time deposit. a. True b. False

Q: Basic checking accounts always pay interest on the balance deposited in the account. a. True b. False

Q: A transaction account allows transactions to occur at any time and in any number. a. True b. False

Q: Most banks offer essentially the same types of accounts. a. True b. False

Q: How does the discount rate differ from the prime rate?

Q: Explain how the Federal Reserve affects the federal funds rate.

Q: Name the goals of the Federal Reserve's monetary policy and the tools it uses to achieve its goals.​

Q: Why did the Fed lower the federal funds rate seven times between 2006 and 2008?​

Q: Briefly describe the main factors affecting interest rates other thanthe actions of the Federal Reserve.

Q: Name and distinguish between the three types of reserves held by banks.

Q: What is a fractional-reserve system? What is its relationship to the money supply in the United States?

Q: Why might extra money in the economy cause inflation?

Q: What is the prime rate?

Q: What thing of value does the government provide those who hold United States currency?

Q: What happens to the money supply if the Fed lowers reserve requirements? Why?

Q: Why does the Federal Reserve require banks to hold money in reserve?

Q: You cannot take a Federal Reserve note to a bank and exchange it for gold or silver. Why not?

Q: What types of money and circumstances of liquidity are defined by the M2 element of the money supply?

Q: Calculate the total amount of money created from a deposit of $5,000 as it moves through four cycles of deposit. Assume a reserve rate of 15 percent. (Round answer to nearest two decimal places.)

Q: Suppose the Fed requires all banks to hold a reserve of 5 percent on the first $60 million of customer deposits, and 12 percent on all deposits above that. If a bank has $125 million on deposit, what is the amount of the reserve requirement?

Q: Suppose the total amount of currency (i.e., Federal Reserve notes and coins) in circulation today is $713 billion. If 95 percent of this amount consists of Federal Reserve notes, what amount of currency in circulation consists of coins?

Q: Barry earns a monthly income of $2,500. He receives a 12 percent raise. What is his monthly income now?

Q: The ____________________ rate is the interest rate the Federal Reserve sets and charges for loans to member banks.

Q: The federal ____________________ rate is the amount of interest charged for short-term, interbank loans.

Q: The ____________________ effect is a phenomenon that creates new deposits from lending.

Q: Resources a bank uses to create money through its business transactions are called ____________________ reserves.

Q: ____________________ money is money that is deemed legal tender by a government.

Q: ____________________ money is based on some item of value, such as gold or precious stones.

Q: ____________________ measures are tools used to estimate the size of the money supply.

Q: ____________________was a measure of the money supply in use from 1971 until 2006.

Q: The measure of how quickly things may be converted to something of value is called ____________________.

Q: The ____________________ supply is defined as the liquid assets held by banks and individuals.

Q: The Federal Reserve influences the federal funds rate by a. buying and selling government securities. b. adjusting the reserve requirement. c. lowering the discount rate. d. all of the above.

Q: The interest rate the Federal Reserve charges for loans to member banks is called the a. prime rate. b. discount rate. c. market rate. d. treasury rate.

Q: If banks must hold more money in reserve, a. the money supply will expand. b. there is more money available to lend. c. there is less money available to lend. d. both a and b, but not c.

Q: Money on deposit, minus ____________________, can be loaned by banks to customers. a. excess reserves b. cash on hand c. primary reserves d. the reserve requirement

Q: Which of the following would be considered a secondary reserve for a bank? a. cash the bank has on hand b. securities the bank has purchased from the federal government c. deposits that may be due from other banks d. the reserve percentage required by the Federal Reserve System

Q: Which of the following is NOT considered a factor in money creation? a. the Federal Reserves supply and control of money b. banks use of money c. the demand for money d. the printing of currency by the Bureau of Engraving and Printing

Q: The official currency of the United States can properly be classified as a. conventional money. b. fiat money. c. commodity money. d. product money.

Q: Which of the following elements of the money supply, as defined by the Federal Reserve, can be spent immediately? a. M1 b. M2 c. Reserves d. MZM

Q: Which of the following assets is the most liquid? a. the money in your savings account b. 100 shares of stock in a Fortune 500 company c. the money in your wallet d. a certificate of deposit that comes due in six months

Q: If there is too much money moving in the economy a. unemployment will probably rise. b. prices may rise, causing inflation. c. prices will fall, causing widespread business failure. d. both a and b, but not c

Q: The prime rate is usually the same among major banks. a. True b. False

Q: Generally speaking, when interest rates are high more credit is accessible and the economy tends to grow quickly. a. True b. False

Q: A dollar bill represents an obligation of the government to provide something of value to you. a. True b. False

Q: Most large money transactions involve ledger entries rather than the movement of physical currency. a. True b. False

Q: A bank may not use secondary reserves to give depositors their money back if they demand it. a. True b. False

Q: Banks can loan customers the money they have on deposit, minus the reserve requirement. a. True b. False

Q: The agreed-upon value of money in the United States today is based on the governments supply of gold at Fort Knox, Kentucky. a. True b. False

Q: MZM is sometimes referred to as the base money supply. a. True b. False

Q: Liquidity is variable, depending on the nature of the asset. a. True b. False

Q: The flow of money has a direct effect on how the economy performs. a. True b. False

Q: ​If monetary policy restricts the flow of money into an economy too severely, businesses may not be able to afford to borrow. What are the usual economic results of this?​

Q: Why is monetary policy easier to use than fiscal policy to prompt adjustments to the economy?

Q: Explain how the Board of Governors is selected, the length of each members term, and the purpose of the Board. Be sure to distinguish between the terms of the chair, the vice-chair, and governors.

Q: Briefly explain why the government might cut spending or raise taxes during a time when the economy is prospering.

Q: How does the Federal Reserve derive its income? Is any money appropriated to the Federal Reserve by the United States government?

Q: The Federal Reserve Board shares enforcement of consumer protection laws with a number of other agencies. List three of the agencies.

Q: Describe how the Fed increases and decreases its reserves using open market operations.

Q: Name three functions performed by the Federal Reserve in its role as the governments bank.

Q: What is the Taylor rule?

Q: What is sterilization and why is it significant?

Q: What agency issues a CAMELS rating and what is the purpose of the rating?

Q: What is a charter and why is it important to banks?

Q: How does the Fed try to keep consumers educated regarding their rights?

Q: Name four characteristics that the Equal Credit Opportunity Act prohibits considering when determining the creditworthiness of a consumer.

Q: Name the three tools developed by the Fed in 2007 to help manage monetary policy and deal with the financial crisis.