Economics Chapter 21

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Assuming that all of the accounts are held in the same bank, how much of Carlos's balance in the bank is not insured by the FDIC?

$100,000

How many districts are in the Federal Reserve System?

12

Made in 1791, charter for 20 years, held the government's money and made its payments, and loaned money to the government and businesses

1791 First Bank of the United States

What three functions does money serve?

A medium for exchange, a store of value, and as a measure of value for people to use to purchase things.

What federal law created deposit insurance to protect depositors in case of bank failure?

Banking Act of 1933

_____ created the Fed and retains authority over it.

Congress

Faulty and too many home loans

Credit Crisis of 2008

Coins, bills, and electronic money are all forms of currency. T/F

F

The Fed cannot block a merger between two national banks. T/F

F

The Federal Reserve is called a "banker's bank" because it is the bank to which bankers go when they need to borrow money for their personal use. T/F

F

When the Fed lowers the discount rate, banks are less inclined to borrow. T/F

F

What is the name of the national corporation that insures individual accounts in commercial banks and savings and loan associations up to $250,000?

FDIC

Open market operations (OMO) is the first tool and it is the FOMC's actions of buying or selling government bonds and Treasury bills. The second tool is the discount rate. The discount rate is the rate of interest that the Fed charges to financial institutions when they borrow money from the Federal Reserve. The third tool is the reserve requirement. The reserve requirement is the portion of a new deposit that a financial institution cannot lend out.

Fed's 3 monetary policy tools

The first way is by writing rules the lender must follow. The second is by writing rules that prevent leaders from using deceptive practices in making loans. The third is by writing other rules that member banks must follow. The fourth is using their power to approve mergers between member banks.

Fed's four ways to regulate the financial system

Which part of the Fed buys and sells bonds to change the money supply?

Federal Open Market Committee

the most powerful committee of the Fed, which makes decisions that affect the economy as a whole by manipulating the money supply

Federal Open Market Committee (FOMC)

Which organization takes old money out of circulation?

Federal Reserve

created a central bank for the United States

Federal Reserve Act

Gave the national banks flexibility, 12 districts following monetary policy

Federal Reserve System

Stock market crash of 1929 led to the...

Great Depression

What should Carlos do to have all his balances insured?

He should move the uninsured amount to another bank.

What was a weakness of the Federal Reserve Act of 1913?

It allowed each of the twelve district banks to set its own monetary policy.

1863, brought order to the banking industry, national charters, Comptroller of the Currency regulated them, and safer than state banks

National Bank Act

provided uniform currency backed by government bonds

National Banking Act

What is the name of the national corporation that insures individual accounts in credit unions up to $250,000?

National Credit Union Share Insurance Fund (NCUSIF)

1980s crisis and failed loans

S&L Crisis

National bank made in 1816 and ended in 1836

Second Bank of the United States

As part of its function to maintain the nation's currency supply, the Fed pulls old money out of circulation. T/F

T

Banks make money by making loans to borrowers and charging them interest. T/F

T

Consumers today can do most of their banking over the Internet. T/F

T

Every bank in the U.S. contributed funds to build the new central bank that became the Federal Reserve System. T/F

T

Financial institutions must have federal or state charters. T/F

T

If the FOMC wants to contract the money supply, it sells some of its bonds. T/F

T

In the fall of 2008, the Fed loaned more than $2.5 trillion to the financial institutions. T/F

T

Members of the Federal Reserve System include banks that get their charters from state and national government. T/F

T

Once financial institutions are in operation, the government requires them to prove that they are in compliance with the law and are financially sound. T/F

T

The Federal Reserve System was created to loan money to banks. T/F

T

The Federal Reserve System was unsuccessful at first because the 12 district banks did not work together.T/F

T

The function of the Federal Open Market Committee of the Fed is to make changes to the supply of money. T/F

T

When banks make loans to businesses, the amount of money circulating in the economy increases. T/F

T

How do states and the federal government regulate financial institutions?

The federal government issues a charter to each financial institution and watch how the business is run. This helps insure that the institution stays in good financial condition and that it follows all relevant laws.

What do financial institutions do with the money deposited with them?

They lend much of it to other customers to make money off of the interest the customer will pay on the loan. This is how they make money.

Each member of the Fed's Board of Governors is ______.

appointed by the president

We use money to measure value by ______.

assigning prices to items

People feel confident about putting their money in a bank because _______.

bank deposits are insured by the government

to trade a good or service for another good or service

barter

Federal Reserve System

central bank

an institution that lends money to other banks; also, the place where the government does its banking business

central bank

Which type of account charges a penalty for withdrawing money early

certificate of deposit

bank product that pays higher interest rates in exchange for greater control of a customer's money

certificate of deposit

a timed deposit that states the amount of the deposit, maturity, and rate of interest being paid

certificate of deposit (CD)

Which type of account is likely to pay the lowest interest?

checking

account that pays little or no interest

checking

Which type of bank account is most often used to pay bills and buy goods and services?

checking account

an account from which deposited money can be withdrawn at any time by writing a check

checking account

4 types of accounts offered by banks

checking, savings, CDs, money market accounts

metallic form of money, such as a penny

coin

metallic forms of money

coins

Which type of financial institution offers full services to consumers and businesses?

commercial bank

a financial institution that offers full banking services to individuals and businesses

commercial bank

financial institutions that offer full banking services to individuals and businesses

commercial banks

Many of the historical differences between S&Ls and commercial banks faded away as a result of the _______.

credit crisis of 2008

Risky home loans led to the __________________________.

credit crisis of 2008

Which of the following is a nonprofit financial institution?

credit union

nonprofit service cooperative that accepts deposits, makes loans, and provides other financial services to members

credit union

financial institutions that do not make a profit

credit unions

coins and paper money

currency

money, both coins and paper bills

currency

the money that customers put into a financial institution

deposit

government-backed program that protects bank deposits up to a certain amount if a bank fails

deposit insurance

rate the Federal Reserve System charges member banks for loans

discount rate

the interest rate that the Fed charges on its loans to financial instiutions

discount rate

money in the form of a computer entry at a bank or other financial institution

electronic money

Loans are made to businesses that want to ___ and to people who want to ___.

expand, purchase things

Interest rates go down if the Fed _______.

expands the supply of money

The credit crisis of 2008 was caused by

home loans made to people unable to repay them.

The role of the FOMC is to __________.

influence the economy by manipulating the money supply

The fund that insures deposits in savings and loans, banks, and credit unions ______.

is the FDIC

Why did the First National Bank of the United States close?

its charter ended

The charter of the First Bank of the United States was limited to only 20 years because ________.

leaders thought the bank would become too powerful

What does the Fed do?

manages our currency, regulates commercial banks, serves as the government's bank, and conducts certain policies to keep the economy healthy and strong

Three purposes of money....

medium of exchange, store of value, measure of value

control of the supply of money and the cost of credit

monetary policy

manipulation of the money supply to affect the cost of credit, economic growth, and price stability

monetary policy

a type of savings account that pays interest but also allows customers to write checks against the account

money market account

purchase or sale of U.S. government bonds and Treasury bills

open market operations

the purchase or sale of US government bonds and Treasury bills

open market operations (OMO)

Much of the ___ made by people and ___ are used to ___.

people, businesses, make loans

Money features...

portable, divisible, durable, limited supply

The government began offering deposit insurance to

reassure people that deposits were safe.

Under the National Bank Act banks were _______.

regulated by the federal government

When the Fed writes lending rules for banks, it is acting as a

regulator

percentage of money that member banks must keep in Federal Reserve banks

reserve

the percentage of a deposit that banks have to set aside as cash in their own vaults or as deposits in their Federal Reserve district bank

reserve requirement

account that accumulates interest

savings

an account that pays interest on deposits but allows customers to withdraw money at any time

savings account

financial institution that traditionally loaned money to people buying homes

savings and loan association (S&L)

institutions that traditionally loaned money to people buying homes

savings and loan associations

An object that serves as money should be portable, divisible, durable, and _____.

secure

What types of items, other than coins and paper money, have been used as mediums of exchange throughout history?

shells, gold coins, silver coins, cheese, beads, and gold

Lending increases the ___ of money circulating in the economy--this is the ___ effect.

supply, money supply

3 forms of electronic banking

telephone/cell phone, ATMs, computer banking

When banks were failing during the Great Depression, President Franklin Delano Roosevelt ordered _________.

that all banks close for a "bank holiday"

Grains of rice would not make a good source of money because ______.

the supply is not durable

Which of these is a function of money?

to simplify the exchange of goods and services


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