Economics Chapter 21
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
