Chapter 10 Test ECOn

A(n) ___________ is an account from which the funds can be converted to currency on demand and given to the person to whom the check is made payable.

Demand Deposit

Bank typically fund a loan by giving the borrower cash once the loan is approved

False

Banks borrow from the Fed, never from each other.

False

Banks hold on to most of the money deposited with them and lend a small portion of the remainder

False

Banks that are members of the Federal Reserve System are required to use their excess reserves to extend loans.

False

Credit cars are a form of money.

False

Even Fed checks can bounce.

False

If you receive a new $50 bill for your birthday and deposit it in your checking account, the money supply will decrease.

False

It is as likely for specialization to occur in a barter economy as in a money economy.

False

Some banks that have an affiliation with the Federal Reserve System are allowed to print currency.

False

The Fed prints paper money in Washington D.C., and then distributes the notes to the Federal Reserve district banks.

False

The United States is unique because it has a central bank in addition to commercial banks.

False

The central banking system in the United States has 14 federal district banks.

False

The first bankers were blacksmiths.

False

The _________ is the interest one bank charges another for a loan.

Federal Funds rate

The seven members of the __________ are each appointed to a 14-year term by the president of the United States.

Federal Reserve Board of Governors

In 1913 Congress passed legislation to set up the __________, which is the chief monetary authority in the United States.

Federal Reserve system

The official name of the paper money that is issued by the Federal Reserve System is

Federal reserve notes

____________ consists of currency, checking accounts, and traveler's checks.

M1

The percentage of a bank's checking account deposits that the Fed orders banks to hold, rather than loan out, is called

Required reserves

A bank's checking account with its Federal Reserve district bank is called a(n) ___________.

Reserve account

The principal components of the Federal Reserve System are the Federal Reserve Board of Governors and the

The federal reserve district banks

A subprime mortgage loan is considered a nontraditional loan.

True

Checking accounts are sometimes called demand deposits.

True

If the demand for a loan rises but the supply of loans remains constant, interest rates will rise.

True

Money has value only because other people will accept it in exchange for what they have.

True

One of the functions of money is serving as a store of value.

True

Raising the discount rate will cause the money supply to fall

True

The Fed requires each commercial bank that is a member of the system to maintain a reserve account with its Federal Reserve district bank.

True

The central bank provides check-clearing services to member banks.

True

The money supply is larger when the reserve requirement is the smallest.

True

The money supply will fall if the Fed conducts an open market sale.

True

Through the process of making loans, the banking system can actually "create" money.

True

When a bank receives new checking account deposits, the required reserves must be set aside and new loanable funds are available

True

In a(n) ______________ economy, trades are made in goods and services instead of money

barter

Both coins and paper money are considered ____________.

currency

The amount that the Fed charges a bank for a loan is called the

discount rate

Banks can make loans with their

excess reserves

The 12-member group in the Federal Reserve System that affects monetary policy by buying and selling government securities is the

federal open market committee

A banking arrangement in which banks hold only a portion of their deposits and lend out the remainder is called _______________.

fractional reserve banking

The central bank in the United States serves as the ___________ when it lends funds to a bank when no one else will.

lender of last resort

_____________ is any good that is widely accepted for the purposes of exchange and repayment of debts.

money

When the Fed buys or sells government securities it is called

open market operations

The Fed regulation that demands a bank keep a certain percentage of its deposits either in an account with the Fed or in its vault as vault cash is called the

reserve requirement

A(n) ____________ is an interest-earning account.

savings account

A bank's __________ is/are equal to its deposits in the reserve account at the Fed plus its vault cash.

total reserves

____________ are the costs associated with the time and effort necessary to search out, negotiate, and finalize an exchange.

transaction costs

Money functions as a(n) ______________ because it is a common measurement used to express values.

unit of account