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

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Question 21

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Jared read an article that showed a dramatic increase in money market accounts and certificates of deposit in the last quarter. The story reported that all other major components of the U.S. money supply remained unchanged. Based on this information, Jared can conclude that for the past quarter

A) both the M-1 and M-2 money supplies were stable.
B) the M-1 money supply has increased, but the M-2 money supply was stable.
C) the M-2 money supply has increased, but the M-1 money supply was stable.
D) both the M-1 and the M-2 money supplies have increased.

E) A) and B)
F) A) and C)

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Question 22

Multiple Choice

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When the Fed increases the reserve requirement, banks

A) must increase the dollar volume of loans they make to customers.
B) must pay more to borrow from the Fed.
C) have fewer funds available for lending.
D) will find their balance sheets temporarily out of balance.

E) A) and B)
F) All of the above

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Question 23

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Pension funds invest monies contributed by employers and/or employees for the benefit of their members' retirement.

In the early 2000s, banks took the mortgages that they owned, created mortgage-backed securities out of them, and sold them as safe investments.

The International Monetary Fund assists with the smooth flow of money among nations.

Bigbux Bank holds $300 million in deposits from their customers. If the Fed sets the reserve requirement at 12 percent, Springfield must hold $24 million in cash at the bank or in non-interest-bearing deposits at the local Federal Reserve district bank.

A central bank allows individual banks to deposit and to borrow funds.

Critics of the World Bank charge the organization with

International bankers prefer to invest in their own countries whenever possible.

Describe and compare the three major types of organizations that make up the U.S. banking system: commercial banks, savings and loan associations, and credit unions.

Roberto deposited $66,000 in various individual accounts at his local credit union. He and his wife also have a joint savings account worth $54,700. What portion of these deposits is insured?

A significant increase in the money supply creates inflationary pressures in the economy.

Online banks offer customers better interest rates and lower fees because these businesses avoid the costs of constructing and maintaining a bank building.

A ________ is a profit-seeking organization that receives deposits from individuals and corporations and uses some of these deposits to make loans.

When the Fed increases the discount rate, banks

________ includes anything that people generally accept as payment for goods and services.

The Federal Reserve is the bankers' bank.

When the Fed increases the reserve requirement, banks make fewer loans.

Early in our nation's history, people generally accepted the importance of a central bank authority.

Arturo owns an import business. After traveling to Spain on numerous occasions, he developed a taste for the local wines. An online article he read this morning suggested that the dollar has fallen sharply against the euro. Based on this information, Arturo expects that