Chapter 20 – Money, Financial Institutions, and the Federal Reserve
1. Economic growth and the creation of jobs depend on the availability of money.
2. Most countries restrict the flow of money in and out of their borders.
3. Economic events in other nations seldom impact the powerful U.S. economy.
4. Barter is the trading of goods and services for other goods and services.
5. Barter involves the use of electronic payment systems, like Paypal.com, for online
transactions.
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6. Money is anything people generally accept as payment for goods and services.
7. Efficient monetary systems eliminate the use of barter.
8. A barter exchange is a system where you input into a system the goods and services that
you are willing to trade, and receive trade credit.
9. Coins and bills are portable and durable.
10. The strength of the U.S. money system rests on the silver content of the coins.
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11. Electronic cash is the newest form of money.
12. Historically, coins and paper money complicated the exchange process.
14. Companies are now developing ways to send money across national boundaries using
e-cash.
15. The President of the U.S. is in control of the money supply in the U.S.
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16. Several European countries report a significant decrease in the level of jobs, income,
and production of goods and services. The size and strength of the U.S. economy insulates
U.S. businesses from the economic problems of other countries.
Feedback: Each day, about $4 trillion is exchanged in the world’s currency markets. Thus,
what happens to any major country’s economy has an effect on the U.S. economy and vice
versa.
17. Real dollars are made with various lines of colors such as peach and blue. They have
art work that is off-center, and there are other identifiable watermarks for the purpose of
making replication quite easy.
Feedback: The pain-staking process of creating real dollars involves creating invisible lines
that only show-up under certain conditions and are identifiable by banks and other businesses.
Art work is slightly off-center. Newer colors have been introduced to differentiate between
counterfeit dollars and real dollars.
18. The currencies of some countries, although durable and portable are relatively
unstable, which makes international exchanges difficult.
Feedback: The currencies of other nations are not always equally stable, even though they
may be equally portable, divisible, and durable.
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19. The problem with barter exchanges is that it is too difficult to find people to exchange
your good with.
Feedback: Barter exchanges make it very convenient to find exchange partners. You enter
your goods into a system and you get a certain value of trade credit.
20. Trading internationally by using money appears easy and almost effortless, but the fact
is there is a very complex banking system that makes it happen.
Feedback: A complex banking system is behind the scenes, making the free flow of money
for the purposes of trade appear quite smooth and uncomplicated.
21.
Chapter 20 – Money, Financial Institutions, and the Federal Reserve
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The U.S. production of the Sacagawea dollar coins provides greater durability than paper
dollar bills.
Feedback: Coins can actually last for thousands of years, as divers have discovered when
exploring sunken ships.
22. The people living on the island nation of Wacki-ki readily accept a certain type of
seashell as payment for the goods and services they trade. For Wackians (the name of
Wacki-ki natives), seashells serve as money.
Feedback: Money is anything that people readily accept as payment for goods and services.
23. When Mrs. Sweet exchanges her famous chocolate chip cookies for the lawn care
services of her neighbor, she engages in a barter transaction.
Feedback: Barter occurs when people trade a good or service in exchange for other goods and
services.
24.
Chapter 20 – Money, Financial Institutions, and the Federal Reserve
The money supply represents the amount of money the Federal Reserve Bank makes
available for people to buy goods and services.
25. Both the M-1 and M-2 definitions of money include coins and paper money.
26. The M-1 money supply includes money in savings accounts, mutual funds, and money
market accounts.
27. M-2 represents the most commonly used definition of the money supply.
28. The M-1 definition of the money supply includes travelers’ checks.
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39. Open-market operations is the buying and selling of government securities by the
Federal Reserve Board.
40. The reserve requirement represents the interest rate charged by the Federal Reserve for
government guaranteed student loans.
41. The reserve requirement represents the Fed’s most powerful tool for conducting
monetary policy.
42. When the Fed increases the reserve requirement, banks make fewer loans.
43.
Chapter 20 – Money, Financial Institutions, and the Federal Reserve
When the Federal Reserve wants to increase the money supply, they decrease the reserve
requirement.
44. When the Federal Reserve acts to reduce inflation, they decrease the reserve
requirement.
45. The Fed commonly buys or sells U.S. government securities to regulate the money
supply.
46. The federal funds rate is the interest rate that banks charge each other.
47. The rate of interest charged by the Federal Reserve is called the federal funds rate.
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70. When the U.S. was still a colony of Great Britain, land banks were created to lend
money to farmers.
71. The United States first established a central bank in 1913 by establishing the Federal
Reserve System.
72. A central bank allows individual banks to deposit and to borrow funds.
73. Thomas Jefferson proposed the establishment of the first central bank in the United
States.
74.
Chapter 20 – Money, Financial Institutions, and the Federal Reserve
Early in our nation’s history, people generally accepted the importance of a central bank
authority.
75. Alexander Hamilton persuaded Congress to create a central bank.
76. Prior to the Civil War, the United States had two unsuccessful attempts at a central
bank.
77. In the early 1800s, the United States allowed banks to issue different kinds of
currencies.
78.