Business chapter 15: questions

If the Federal Reserve Board wants to increase the money supply in the economy, it will most likely

buy government securities.

Open market operations refers to decisions to

buy or sell US Treasury bills and other investments in the open market

The Federal Reserve Board controls the amount of money available in the economy

by establishing monetary policy

When Nellie's uncle died, he left her $5,000. Since she doesn't plan to spend the money anytime soon, she decides to open an account that will guarantee her a fixed interest rate of 5 percent for five years. With this type of account, if she withdraws funds before the 5 years pass, she will have to pay a substantial penalty. What type of account did Nellie open?

certificate of deposit

Every month, Olivia receives a bill in the mail from her mortgage company. By the first of each month, she must send back her payment, along with the bottom part of the bill, which includes her account information and the amount enclosed. She pays these mortgage bills using a form of payment that is essentially a written order to her bank to pay the mortgage company the specified amount from the money in her bank account. What form of payment is Olivia using in this scenario?

check

______ are preferred over currency for many transactions due to their lower risk of loss

checks

As a measure of value, money primarily serves as a(n)

common standard or yardstick of the worth of goods and services

All of the following are actions the Federal Reserve Board takes as part of its regulatory functions EXCEPT

controlling the total amount of credit borrowing in the stock market

Consumers often use _________ as a popular substitute for cash payments due to the convenience and wide acceptance by merchants, as well as the ability to pay for purchases at a later date

credit cards

Derek's older sister tells him that she could buy more toffee candies for a dollar when she was his age than she can now. Derek's sister is referring to the ________ of money

stability

Kate makes $3,000 a month working as a radiology technician. She wants to buy a used car for $10,000. She plans to save $2,000 per month for 5 months to buy the car. What function of money does this scenario best describe?

store of value

What is TRUE of finance companies?

they offer short term loans

Mutual Bank is unable to meet the Federal Reserve Board's reserve requirements, so it must take out a loan from the Fed. In this scenario, Mutual Bank is said to have borrowed at the

"discount window"

Mutual bank is unable to meet the Federal Reserve Board's reserve requirements, so it must take out a loan from the Fed. In this scenario, Mutual Bank is said to have borrowed at the

"discount window"

The ________ insures individual bank accounts

Federal Deposit Insurance Corporation

The ________ Act repealed the Glass-Steagall Act, putting U.S. commercial banks on the same competitive footing as European banks and providing a more level playing field for global banking competition.

Gramm-Leach-Bliley

Alyssa wants to open an individual retirement account (IRA) to provide for her personal retirement needs. What is something she should consider when deciding between a traditional IRA vs a Roth IRA?

In a traditional IRA, the interest earned may be deferred tax-free until retirement; while in a Roth IRA, no tax is paid on the distribution withdrawn at retirement

Which legislative act restricted commercial banks from engaging in certain high-risk trading activities and also raised the required capital that banks must hold on their balance sheets?

The Dodd-Frank Act

Superior Savings Bank is holding $20 million in deposits, with a 10 percent reserve requirement. As a result, the bank must have reserves of $2 million. If the Federal Reserve Board reduced the reserve requirement to 5 percent, what would this mean for Superior Savings Bank?

The bank could lend to customers the $1 million difference between the old reserve level and the new lower reserve level.

Which statement is TRUE regarding savings accounts?

Their funds can be moved to a checking account or turned into cash.

A money market fund and a money market account differ in that

a money market fund represents a pool of funds, while a money market account is basically a specialized, individual checking account.

Coins are used primarily to provide

Divisibility

When Tonya uses her _______ to buy a pair of shoes, the payment comes immediately out of her checking account to the account of the shoe store that sold her shoes

debit card

After using the barter system, it was decided that a simpler medium of exchange needed to take place, and the result was to

decide on a single item that could be freely converted to any other good upon agreement between parties.

A checking account is also called a demand deposit because

depositors can demand a certain rate of interest on the account

U.S. money includes subtle colors in addition to the traditional green, as well as enhanced security features, such as a watermark, security thread, and color-shifting ink. What characteristic of money is being protected by these measures?

difficulty to counterfeit

Ace trucking is a manufacturer of expensive semi-trucks. If the company helps its customers finance the purchase of its trucks through its finance subsidiary, Ace Trucking would be acting as a(n)

diversified firm

Nonbanking institutions differ from banking institutions in that they

do not accept deposits

A checking account of a credit union is commonly referred to as a(n)

share draft account

Noelle has taught dance classes at a large studio for several years. Recently, she decided to start her own dance studio. As a function of money, this scenario describes Noelle's desire for ___________ actions.

financing

The Federal Reserve took all of the following actions during the most recent financial crisis between 2007 and 2008 EXCEPT it

gave a directive to change the management of the banks that had to be bailed out.

In general, the longer the term of a certificate of deposit, the

higher is its interest rate.

When the Federal Reserve board raises the discount rate

interest rates increase, the money supply decreases, and economic activity slows down

What characteristic of money is directly related to the health of the economy?

its acceptability

What type of institution is similar to a savings and loans association but is owned by its depositors?

mutual savings bank

All of the following are ways the Credit CARD Act of 2009 regulates the practices of credit card companies EXCEPT it

limited the ability of card issuers to raise interest rates

There is an increase in economic activity when the Federal Reserve Board

lowers the discount rate.

When Congress originally established insurance funds for banks, it did so to

make people feel secure about their savings

Chuck and Paula want to buy their first home. They have done online research and determined that most houses having the features they want in the area where they live cost around 350,000 dollars. They hire a real estate agent who helps them buy and find a house for 345,000 dollars. What function of money does this scenario best describe?

measure of value

Chuck and Paula want to buy their first house. They have done online research and determined that most houses having the features they want in the area where they live cost around $350,000. They hire a real estate agent who helps them find and buy a house for $345,000. What function of money does this scenario best describe?

measure of value

______ accounts are similar to interest-bearing checking accounts, but with more restrictions

money market

Amber is interested in investing her money in a mutual fund that invests in short-term debt securities issued by governments and large corporations. She also wants to be able to write checks and reinvest interest income from her investments. Which institution would Amber most likely choose for her investments?

money market fund

When the Federal Reserve Board sells government securities

money supply in the economy decreases

Nicole and Jesse are looking to purchase their first home. What is the name of the loan they will secure to buy their house?

mortgage

Johnathan is a 50-year-old construction site foreman who invests money with firm that, in turn, pools it with other investor dollars and invests the money in well-diversified securities, managed by an investment professional within the firm. In this scenario, Johnathan is investing in a(n)

mutual fund

A savings account of a credit union is commonly referred to as a(n)

share account

____________ allow consumers to perform an ever-widening array of financial transactions from their personal or work computers

online banking services

A company that matches investors and borrowers with loans between 2,000 and 35,000 are referred to as

peer to peer lenders

For money to function as a medium of exchange, it must be easily moved from one location to the next. What characteristic of money does this statement reflect?

portability

All of the following are major responsibilities of the Federal Reserve Board EXCEPT

providing short term loans to businesses

What factor has challenged the banking industry and forced it to undergo changes?

rapid technological innovations

The Federal Reserve Board was established by Congress in 1913 to

regulate the banking industry.

a characteristic of commercial banks is that they

rely on checking and savings accounts for firms

As a medium exchange, money

replaces the need for bartering.

During 2007-2008, which of the following contributed to the collapse of the financial market

securities backed by subprime mortgages