ECON CH 14

True or false: People can convert checkable deposits into paper money and coins on demand.

True

When people measure the worth of various items in terms of money, money is performing the function of a what?

Unit of account

Checkable deposits are the debts or liabilities of which of the following?

Commercial banks Thrift institutions

What is a criticism of the Wall Street Reform and Consumer Protection Act of 2010?

The act merely creates more costly regulation.

True or false: The government responded to the financial crisis with historically unprecedented fiscal policy action.

True

Who issues metal coins?

U.S. Treasury

Savings and loan associations, mutual savings banks, and credit unions are known collectively and specifically as ______.

thrift institutions

The United States' 12 Federal Reserve banks act as a central bank because their policies are coordinated by ______.

the Fed's Board of Governors

Money serves as a store of _____ that enables people to transfer purchasing power from the present to the future.

value or wealth

Money serves as a store of value that enables people to ______.

transfer purchasing power from the present to the future

Which of the following is a "stock" of some item or group of items that is used as a medium of exchange?

Money

What are subprime mortgage loans?

Mortgage loans made to very high risk individuals

Which of the following were deemed by Congress in the early 20th century to be essential for an efficient banking system?

Public control Centralization

Why did banks believe that mortgage-backed securities protected them from defaults?

Risk of default was transferred to the owner of the mortgage-backed securities.

Which of the following characteristics of checks has made checkable deposits a large component of the M1 money supply?

Safety Convenience

What is meant by the term "thrifts"?

Savings and loan associations Mutual savings banks Credit unions

Who is the central authority of the U.S. money and banking system?

The Board of Governors of the Federal Reserve

What happens when the consumer price index, or "cost-of-living" index rises?

The purchasing power of the dollar falls

True or false: Hyperinflation may cause stable currencies such as the U.S. dollar or the European euro to come into widespread use because a country might adopt a stable currency as its own official currency.

True

The debts or liabilities of commercial banks and thrift institutions are known as _____ deposits.

checkable

The safety and convenience of ______ has made checkable deposits a large component of the M1 money supply.

checks

Money functions primarily as a medium of _____, a unit of _____, and a store of value.

exchange; account

The 12 _____ _____ banks blend private ownership and public control, making them quasi-public banks.

federal reserve

The Fed acts as the _____ agent (provider of financial services) for the federal government.

fiscal

The U.S. government responded to the financial crisis with unprecedented _____ policy actions.

fiscal

Appropriate fiscal policy that is supportive of efforts of the nation's monetary authorities is meant to control ______.

inflation

Studies show that countries that have independent central banks like the Fed have lower rates of _____, on average, than countries that have little or no central bank independence.

inflation

An asset's ______ is the ease with which it can be converted quickly into the most widely accepted and easily spent form of money, cash, with little or no loss of purchasing power.

liquidity

A unit of account is a function of what?

money

The supply of _________ in the United States essentially is "backed" (guaranteed) by the government's ability to keep its value relatively stable.

money

M1 is a component of the U.S. ______.

money supply

The 12 Federal Reserve Banks are quasi-public banks, which blend _____ ownership and public control.

private

The amount of goods and services a unit of money will buy is called ______.

purchasing power

The _____ power of money is the amount of goods and services a unit of money will buy.

purchasing, buying, or spending

The Federal Reserve Bank sets ______ which are the fractions of checking account balances that banks must maintain as currency reserves.

reserve requirements

Federally chartered banks are required to purchase ______.

shares of stock in the Federal Reserve Bank in their district

Private banks chartered by the individual states to operate within those states are called ______.

state banks

Money is a ______ of some item or group of items that is used as a medium of exchange.

stock

True or false: Commercial state banks are private banks chartered by the individual states to operate within those states.

True

The United States' Federal reserve system consists of how many regional banks?

12

Who implements the policy decisions related to the monetary control of the U.S. money and banking systems?

12 Federal Reserve Banks

If the price level doubles, the value of the dollar declines by

50%

Which two of the following are necessary for price level stability?

Careful management of interest rates Intelligent management of the money supply

Which of the following are components of M1?

Checkable deposits Currency

Which of the following are primary depository institutions that accept deposits of households and businesses, keep money safe until it is demanded via checks, and in the meantime use it to make available a wide variety of loans?

Commercial banks

What is the interest rate charged on loans from the Fed to banks and thrifts in their district?

Discount rate

Who accepts as deposits from the banks and thrifts any portion of their mandated reserves not held as vault cash?

The central banks

One of the primary contributing factors of the Great Recession was ______.

a financial crisis

Some firms, such as Goldman Sachs and Morgan Stanley, who were highly exposed to mortgage-backed securities, became ______ to qualify for emergency loans.

bank holding companies

The 12 Federal Reserve Banks also serve as ______ banks.

bankers

Because money is a medium of exchange, society avoids:

barter

Token money consists of _____.

bills or coins with face values that exceed their commodity value

Just as banks and thrifts accept the deposits of and make loans to the public, the ______ accepts the deposits of and makes loans to banks and thrifts.

central bank

When money is used as a yardstick for measuring the relative worth of goods or services it is functioning as a ______.

unit of account

commercial bank _____provide short-term financial capital to businesses and the financing of consumer purchases such as durable goods.

loans, funds, or funding

True or false: Each Federal Reserve Bank is owned by the private commercial banks in its district.

True

True or false: Federally chartered banks are required to purchase shares of stock in the Federal Reserve Bank in their district.

True

Which of the following are functions of money?

Unit of account Store of value Medium of exchange

Studies show that countries that have independent central banks, such as the Federal Reserve Bank, compared to those that have little or no central bank independence, have lower average rates of ______.

inflation

The purpose of open-market operations is to control the nation's money supply and influence _____ (Enter one word) rates. Listen to the complete question

interest

The ease with which an asset can be converted quickly into cash, with little or no loss of purchasing power, is called what?

Liquidity

Which of the following contributed to high default rates on mortgages during the financial crisis of 2007 and 2008?

Loan applicants claiming untruthfully high earnings

Currency in the hands of the public and checkable deposits are components of ______.

M1

What is the money in the form of currency and checkable deposits in commercial banks called?

M1

A second and broader definition of money includes which of the following?

M1 plus several near-monies

Which of the following were part of the Wall Street Reform and Consumer Protection Act that was passed by Congress in 2010?

Require sellers of asset-backed securities to maintain a portion of them. Provide authority to the Federal Reserve to regulate all large financial institutions. Create a Financial Stability Oversight Council to watch for risks of financial instability.

Which of the following factors contributed to the high number of mortgage defaults during the financial crisis of 2007 and 2008?

Home buyers borrowed more money than they could afford. The federal government subsidized and encouraged home ownership. Banks loosened strict standard for loans.

Why are currency and checkable deposits money?

Because they are widely accepted by people

The 12 Federal Reserve Banks implement the basic policy decisions of the ______.

Board of Governors

The central authority of the U.S. money and banking system is the _____.

Board of Governors of the Federal Reserve System

Money enables society to gain which of the following advantages?

Human specialization Geographic specialization

Which of the following results in the depreciation of a country's currency and may cause more stable currencies, such as the U.S. dollar or the European euro, to come into widespread use?

Hyperinflation

Which firm listed below declared bankruptcy?

Lehman Brothers

True or false: Money supply M1 includes all components of M2.

False

True or false: Society can attain a higher degree of specialization without the use of money than it can with money.

False

In the United States, the monetary authorities are members of the Board of Governors of the _____ _____System.

Federal Reserve

Who acts as the fiscal agent (provider of financial services) for the federal government?

Federal Reserve Banks

In the United States, the monetary authorities are members of the Board of Governors of what institution?

Federal Reserve System

Which of the following is a function of commercial bank loans?

Finance consumer purchases of durable goods Provide short-term financial capital to businesses

The money supply in the United States essentially is "backed" by whose ability to keep the value of money relatively stable?

Government

The crisis in the US financial system in 2007 and 2008 was the worst since the ________ of the 1930s.

Great Depression

How did subprime mortgage loans contribute to the global financial crisis of 2007 and 2008?

Investment companies borrowed money from banks to buy subprime loans. Banks were investors in subprime loans. Banks had to reduce their reserves as they wrote off bad loans.

Which of the following are functions that the Federal Reserve Banks perform?

Issuing currency Setting reserve requirements and holding reserves Lending money to financial institutions

If the price level doubles, what happens to the value of the dollar?

It declines by 50%.

Which of the following are direct roles of commercial banks?

Make available a wide variety of loans Keep money safe until demanded via checks Accept deposits of households and businesses

Which of the following comprise the currency of the United States?

Metal coins Paper money

What is it called when banks bundle hundreds or thousands of mortgages and sell them as bonds?

Mortgage-backed securities

What type of operations serve to control the nation's money supply and influence interest rates?

Open-market

Each Federal Reserve Bank is owned by what group in its district?

Private commercial banks

Who establishes reserve requirements or the fraction of checking account balances that banks must maintain as currency reserves?

The Fed

Who is responsible for issuing currency, setting reserve requirements and holding reserves, lending money to financial institutions, and providing for check collection?

The Federal Reserve Banks

Early in the 20th century, Congress decided that ______ and public control were essential for an efficient banking system.

centralization

People can convert _____ deposits into paper money and coins on demand.

checkable

Because people accept them as money, ______ and ______ deposits are money.

currency; checkable

The central banks accept as ______ from the banks and thrifts any portion of their mandated reserves not held as vault cash.

deposits

The Federal Reserve Bank loaned money to banks and thrifts and charged an interest rate called the _____ rate

discount

When the consumer price index, or "cost-of-living" index rises, the purchasing power of the dollar goes

down

Money is a medium of _____ that is used for buying and selling goods and services.

exchange

Currency that derives its value from the amount printed on it rather than from the value of the paper or metal from which it is made is referred to as ______ money.

token