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1. (p. 546) Economic growth and the creation of jobs depend on money.
2. (p. 546) Most countries restrict the flow of money in and out of their borders.
3. (p. 546) Economic events in other nations seldom impact the powerful U.S. economy.
4. (p. 546) Salt, feathers, stones, and shells have all been used as money.
5. (p. 546) Barter involves the trading of goods and services for other goods and services.
6. (p. 546) Barter involves the use of electronic payment systems, like Paypal.com, for online transactions.
7. (p. 546) Efficient monetary systems eliminate the use of barter.
8. (p. 546) An effective monetary system determines a coin’s value by its silver content.
9. (p. 547) Changes made to the U.S. paper money attempt to create a more durable paper bill.
10. (p. 546) The strength of the U.S. money system rests on the silver content of the coins.
11. (p. 547) Improvements in communication technology help to create stable and equitable national currencies
worldwide.
12. (p. 546) Using coins as a part of a monetary system provide the benefits of portability and divisibility.
13. (p. 547) Electronic cash is the latest form of money.
14. (p. 547) Companies are now developing ways to send money across national boundaries using mobile phones.
15. (p. 547) The President of the U.S. is in control of the money supply in the U.S.
16. (p. 547) The money supply represents the amount of money the Federal Reserve Bank makes available for
people to buy goods and services.
17. (p. 547) Both the M-1 and M-2 definitions of money include coins and paper money.
18. (p. 547) The M-1 money supply includes money in savings accounts and money market accounts.
19. (p. 547) M-2 represents the most commonly used definition of the money supply.
20. (p. 547) The M-1 definition of the money supply includes travelers’ checks.
21. (p. 547) The M-2 money supply includes only money that is quickly and easily raised.
22. (p. 548) A significant increase in the money supply creates inflationary pressures in the economy.
23. (p. 548) Inflation occurs in an economy with too little money chasing too many goods.
24. (p. 548) Changes in the money supply produce little or no change in inflation, employment and economic
growth.
25. (p. 548) When the value of the dollar falls, foreign goods become less expensive for American consumers.
26. (p. 548) The strength of the U.S. dollar depends on the strength of the U.S. economy relative to the economies
of other nations.
27. (p. 546) 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), the seashells serve as
money.
28. (p. 546) 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.
29. (p. 546) When Mrs. Sweet exchanges her famous chocolate chip cookies for the lawn care services of her
neighbor, she engages in a barter transaction.
30. (p. 547) The U.S. production of the Sacagawea dollar coins provides greater durability than paper dollar bills.
31. (p. 548) When the value of the euro increases compared to the U.S. dollar, the price of U.S. exports to Europe
will decrease.
32. (p. 547) While M-1 money supply includes certificates of deposit, M-2 money supply does not.
33. (p. 548) Newspapers in the nation of St. Lunatic report a significant increase in money supply during the past
few months. This information indicates that St. Lunatic may experience a serious recession in the near future.
34. (p. 548) The government of Beckham worries about inflationary pressures that seem to be building within the
nation. Restricting the growth of money supply provides an effective strategy to reduce these inflationary
pressures.
35. (p. 548) When the value of the dollar increases relative to the euro, the number of U.S. dollars needed to
purchase a bottle of French wine decreases.
36. (p. 547) Comparing the difference between the M-1 and M-2 definitions of the money supply reveals that
while M-1 includes only dollars, M-2 includes the currencies of our six largest trading partners.
37. (p. 548) The Federal Reserve establishes the tax policies of the U.S.
38. (p. 548) Theoretically, with the proper monetary policy, the U.S. economy can continue to grow without
causing inflation.
39. (p. 549) The Federal Reserve consists of seven Federal Reserve districts.
40. (p. 549) The President of the U.S appoints the members of the Federal Reserve’s board of governors.
41. (p. 549) The Federal Reserve board of governors establishes our nation’s fiscal policy.
42. (p. 549) The reserve requirement represents the interest rate charged by the Federal Reserve for government
guaranteed student loans.
43. (p. 550) The reserve requirement represents the Fed’s most powerful tool for conducting monetary policy.
44. (p. 550, figure 20.2) When the Fed increases the reserve requirement, banks make fewer loans.
45. (p. 550, figure 20.2) When the Federal Reserve wants to increase the money supply, they decrease the reserve
requirement.
46. (p. 550, figure 20.2) When the Federal Reserve acts to reduce inflation, they decrease the reserve requirement.
47. (p. 550, figure 20.2) Increasing the money supply stimulates the economy and encourages higher growth rates.
48. (p. 550) The Fed commonly buys or sells U.S. government securities to regulate the money supply.
49. (p. 550, figure 20.2) The three basic tools the Fed uses to manage the money supply are reserve requirements,
open-market operations, and the discount rate.
50. (p. 550, figure 20.2) To decrease the money supply, the Federal Reserve sells U.S. government bonds in
open-market operations.
51. (p. 550, figure 20.2) When the Fed increases the reserve requirement it forces banks to increase the number of
loans they make.
52. (p. 551) The prime rate is the interest rate that the Fed charges for loans to member banks.
53. (p. 551) An increase in the discount rate produces a decrease in money supply.
54. (p. 551, figure 20.2) To reduce inflation, the Federal Reserve increases the discount rate.
55. (p. 551) The federal funds rate is the interest rate that banks charge each other.
56. (p. 551) The rate of interest charged by the Federal Reserve is called the federal funds rate.
57. (p. 551) The Federal Reserve assists in the processing of checks between banks.
58. (p. 551) The electronic transfer of money increases the Federal Reserve’s check-clearing operations.
59. (p. 548) The goal of Federal Reserve monetary policy is to affect the level of competition in the U.S. banking
system.
60. (p. 550) Springfield National Bank holds $200 million in deposits from their customers. If the Fed sets the
reserve requirement at 12 percent, Springfield must hold $24 million in cash at the bank or in
non-interest-bearing deposits at the local Federal Reserve district bank.
61. (p. 550, figure 20.2) By reducing the reserve requirement, the Fed intends to increase the money supply.
62. (p. 550, figure 20.2) When the Fed sells U.S. government securities, the U.S. money supply increases.
63. (p. 551) Birchtree National Bank plans to increase the amount of new loans it makes this month. If necessary,
Birchtree can borrow from the Fed and pay interest on the funds borrowed.
64. (p. 550-551, figure 20.2) Recently, the Fed announced a reduction in the discount rate and the reserve requirement.
These actions clearly suggest that the Fed intends to decrease the money supply.
65. (p. 550, figure 20.2) The Fed buys government securities in open-market operations when the economy faces a
recession.
66. (p. 550, figure 20.2) When the Fed increases interest rates, businesses invest more, which stimulates the economy.
67. (p. 552) Land banks were created to lend money to farmers.
68. (p. 552) The United States first established a central bank in 1913 by establishing the Federal Reserve System.
69. (p. 553) A central bank allows individual banks to deposit and to borrow funds.
70. (p. 552) Thomas Jefferson proposed the establishment of the first central bank in the United States.
71. (p. 552–553) Early in our nation’s history, people generally accepted the importance of a central bank authority.
72. (p. 552) Alexander Hamilton persuaded Congress to create a central bank.
73. (p. 552–553) Prior to the Civil War, the United States closed two unsuccessful attempts at a central bank.
74. (p. 553) In the early 1800s, the United States allowed banks to issue different kinds of currencies.
75. (p. 553) A series of bank failures and a cash shortage in 1907 led to the establishment of the Federal Reserve
System in 1913.
76. (p. 553) By the time of the Civil War, the efficient banking system of the United States was the envy of the rest
of the world.
77. (p. 553) A “run on the bank” occurs when large numbers of depositors lose faith in the banking system and
withdraw their deposits.
78. (p. 553) The Federal Reserve System was designed to prevent a repeat of the 1907 banking crisis.
79. (p. 553) Thanks in part to the Federal Reserve System, few banks failed during the Great Depression.
80. (p. 553) Created during the Great Depression, the federal deposit insurance program resulted in a large number
of bank failures.
81. (p. 554) In the 1930s, during the Great Depression, the government started an insurance program to protect the
public from bank failures.
82. (p. 553) All federally chartered banks are members of the Federal Reserve.
83. (p. 553) The Federal Reserve is the “bankers’ bank.”
84. (p. 552–553) The First Bank of the United States, which was the brainchild of Alexander Hamilton, lasted from
1791-1811. The Second Bank of the United States was established in 1816 and was closed in 1836.
85. (p. 553) The Federal Reserve, a “lender of last resort,” loans money to small businesses that are unable to
obtain loans through private banks.
86. (p. 553) The Federal Reserve System enabled the U.S. economy to avoid serious banking problems during the
Great Depression.
87. (p. 553) The Emerald National Bank can deposit or borrow funds from the Federal Reserve System.
88. (p. 554) One of the most important results of this legislation was the establishment of federal deposit
insurance.
89. (p. 553) During the Civil War, coins were hoarded not because of their currency value, but because they were
worth more simply as gold and silver.
90. (p. 554) Commercial banks, savings and loan associations, and credit unions all represent components of the
American banking system.
91. (p. 554) Nonbanks, also called nondeposit institutions, include commercial banks, pension funds, and
insurance companies.
92. (p. 554) Commercial banks offer services to depositors and borrowers.
93. (p. 554) Depositors represent a bank’s primary responsibility, followed by their responsibility to borrowers.
94. (p. 554) Commercial banks operate as nonprofit institutions.
95. (p. 554) Commercial banks attempt to profit by using funds deposited by customers to make interest-bearing
loans to borrowers.
96. (p. 554) A savings account represents a demand deposit.
97. (p. 554) A demand deposit is also known as a checking account.