192. (p. 563) When the Federal Reserve pursues policies that increase interest rates, the amount of foreign funds
flowing into the United States also increases.
193. (p. 564-565) As a relatively poor nation, Liberia wants to obtain funds for a project to improve the availability
of water and electricity. Liberia should contact the International Monetary Fund.
194. (p. 563) Everything else held constant, an international bank based in New York would prefer to loan money
195. (p. 546) __________ includes anything that people generally accept as payment for goods and services.
D. A barter-good
196. (p. 546) __________ occurs when goods are traded directly for other goods.
D. Credit
197. (p. 546) The electronic flow of cash has __________ the barter system.
A. eliminated
198. (p. 547) To be useful, an object used as money should be:
D. substantial.
199. (p. 547) Which of the following represents a benefit of coins over paper money?
A. improved portability
200. (p. 547) The redesign and new colors added to U.S. paper money is intended to:
D. increase the portability of our money.
201. (p. 547) E-cash provides consumers with a mechanism to:
A. utilize the efficient barter system.
202. (p. 547) When e-cash is e-mailed to anyone using Web sites such as Pay Pal, recipients can receive the money
by:
D. obtaining a credit at the local department store.
203. (p. 547) The Fed Chairman is in control of:
D. the IMF.
204. (p. 547) The ______ definition of money supply only includes money that is quickly and easily accessed.
A. e-cash
205. (p. 547) The _______ definition represents the most commonly used definition of the money supply.
D. L
206. (p. 548) A rapid increase in the money supply may lead to a(n):
D. decrease in spending by consumers and businesses.
207. (p. 548) When the value of the U.S. dollar increases relative to other currencies:
A. the rate of inflation increases.
208. (p. 548) The strength of the U.S. dollar relative to other currencies depends mainly on:
D. exchange rate decisions made by the International Monetary Fund.
209. (p. 547) Using fresh fruits and vegetables as money fails to achieve the desired ________ characteristic of
useful money.
A. objectivity
210. (p. 546) Using heavy or bulky items as money fails to achieve the ________ characteristic of useful money.
A. durability
211. (p. 547) Which of the following is included in the M-2 definition of the money supply but not the M-1
definition?
212. (p. 547) Which of the following is not included in the M-1 or M-2 definitions of the money supply?
D. currency
213. (p. 547) Which of the following statements best summarizes the difference between M-1 and M-2?
A. The M-1 definition of the money supply considers only domestic currencies while the M-2 definition
includes foreign currencies.
214. (p. 548) An increase in the rate of inflation would likely result from a(n):
A. decrease in spending by the federal government.
215. (p. 548) A significant decrease in the money supply tends to:
A. reduce the supply of gold held by the federal government.
216. (p. 546) Kimberly trades some of her homegrown tomatoes to her neighbor, Ron, for some green peppers
fresh from Ron’s garden. This type of trade represents an example of:
D. tax avoidance.
217. (p. 547) Bob read a newspaper story that indicated a dramatic increase in money market accounts and
certificates of deposit during the last three months. The story reported that all other major components of the
U.S. money supply remained unchanged. Based on this information, Bob can conclude that for the past quarter:
A. both the M-1 and M-2 money supplies were stable.
218. (p. 548) Louis owns an export business. After traveling to France on numerous occasions, he developed a
taste for fine French wines. Louis has just heard a report on the radio that indicates that the dollar has risen
dramatically relative to the euro. Based on this information, Louis expects that:
D. the French government will place an embargo on American exports.
219. (p. 548) After her experience with buying Japanese cars, Valerie plans to buy another car made in Japan. She
recently heard a new report indicating that the value of the dollar has fallen sharply relative to the Japanese yen.
With that news, Valerie now expects:
D. lower prices for Japanese cars.
220. (p. 548) President Dude, the leader of the island nation of Jaylo, refuses to raise taxes, but wants to expand
many government services and increase the size of the Jaylo armed forces. He plans to pay for all of the desired
expenditures by printing more money. If President Dude carries out his plan by rapidly increasing the supply of
money, Jaylo will likely experience:
A. a severe recession.
221. (p. 548) The organization responsible for conducting monetary policy in the United States is the:
A. Federal Trade Commission.
222. (p. 549, figure 20.1) The Federal Reserve System consists of ________ Federal Reserve banks.
A. 5
223. (p. 549) The board of governors of the Federal Reserve System determines:
D. how much money the U.S. will loan to foreign governments.
224. (p. 550, figure 20.2) The Fed uses ________ to regulate the money supply.
A. stock market investments
225. (p. 550) The ___________ represents one of the Fed’s most powerful monetary policy tools.
D. working capital requirement
226. (p. 550) The Fed demands that banks hold funds against the checking and saving deposits of their customers.
Expressed as a percentage of the deposits, this tool is known as the:
A. prime rate.
227. (p. 550) Which of these is the most commonly used tool of monetary policy?
228. (p. 550) ________ involves the Fed buying and selling U.S. government securities to increase or decrease the
money supply.
A. Discounting
229. (p. 551) The ___________ rate represents the interest rate charged by the Fed when loaning funds to member
banks.
D. reserve
230. (p. 551) Which of the following groups is responsible for processing checks?
D. paypal.com network
Nickels – Chapter 20 #230
231. (p. 550, figure 20.2) When the Fed increases the reserve requirement, banks:
A. must increase the dollar volume of loans they make to customers.
232. (p. 551) When the Fed increases the discount rate, banks:
D. must hold a greater amount of funds in reserve against deposits.
233. (p. 550) Which of the following represents the Fed’s policy to increase the amount of money in circulation?
A. reduce taxes
234. (p. 550) When the Fed buys U.S. government securities, the:
A. size of the federal deficit falls.
235. (p. 550) The Megabux National Bank currently has deposits of $200 million. If the Fed establishes a reserve
requirement of 12 percent, Megabux National must hold reserves of _______ against its deposits.
D. $200 million
236. (p. 550) The Fed bought several billion dollars worth of U.S. government securities. The purpose of this
action is to:
A. decrease the size of the national debt.
D. the amount of money in circulation can be no more than 6% greater than the amount of gold held in reserve
by the government.
238. (p. 550-551) News reports indicate that the Fed plans to announce its third increase in the discount rate in the
last five months. Additionally, the reports suggest that the Fed may also increase the reserve requirement in the
near future. Apparently the Fed perceives the number one problem facing the economy is:
A. the size of the federal deficit.
239. (p. 550) To stimulate the economy during a recession, the Fed would:
A. cut taxes.
240. (p. 551) Which of the following reduces the costs involved with the Federal Reserve’s check-clearing role?
A. a decrease in the use of the barter system
241. (p. 552, figure 20.3) When Mr. Smith in Quince Orchard, MD uses a check to buy a tractor from Mr. Brown in
Austin, TX, __________ different banks are involved in the transaction.
D. no
242. (p. 551-552) Early settlers of the New World relied heavily on barter because:
D. they wanted to protest against British control of the banking system.
243. (p. 552) ________ persuaded Congress to establish the first central bank in the United States.
A. Benjamin Franklin
244. (p. 553) Historically, there has been ________ a central bank in the U.S.
D. disinterest in
245. (p. 553) By the time of the Civil War, the U.S. banking system operated:
246. (p. 553) The banking panic of 1907 and the resulting cash shortage led to the formation of the:
D. FDIC.
Nickels – Chapter 20 #246
247. (p. 553) Under the Federal Reserve Act of 1913:
D. all banks were required to hold reserves equal to at least 50 percent of their deposits.
248. (p. 554) As a response to the bank failures of the ________, a system of federal deposit insurance was
established to strengthen the banking system.
A. Civil War
249. (p. 553) Which of the following historical events motivated Congress to establish the Federal Reserve
System?
A. the significant outflow of gold during the Civil War
250. (p. 553) The Federal Reserve fulfills its role as a “lender of last resort” when it loans funds to:
D. the federal government when deficits exceed borrowing limits set by Congress.
251. (p. 554) One of the most important aspects of the banking legislation passed during the 1930s established:
A. the Federal Reserve System.
252. (p. 551-554) Which of the following statements most accurately represents the history of U.S. banking?
A. Although many technological changes have occurred, and banks have grown tremendously in size, the basic
structure of banking in the United States has been very stable since the Revolutionary War.
253. (p. 553) The Federal Reserve represents a “banker’s bank” because:
A. it was created as a central clearinghouse for the transactions of the largest banks.
254. (p. 554) A __________ is a profit-seeking organization that receives deposits from individuals and
corporations and uses some of these deposits to make loans.
A. credit union
255. (p. 554) The American banking system serves two major types of customers:
D. short-term borrowers and long-term borrowers.
256. (p. 554) Which of the following represents the technical name for a checking account?
A. free deposit
257. (p. 555) The technical name for a savings account is a:
D. retained income account.
258. (p. 554) A __________ represents an interest-earning checking account.
A. certificate of deposit
259. (p. 555) ________ offer customers the convenience of 24-hour banking in locations nearly everywhere.
A. Point of display terminals (PODs)
260. (p. 557) A(n) __________ accepts savings and checking account deposits and provides home mortgage
loans.
A. nonbank