question

medium of exchange

answer

any item sellers generally accept and buyers generally use to pay for good or service; money; a convenient means of exchanging goods and services without engaging in barter

question

unit of account

answer

a standard unit in which prices can be stated and the value of goods and services can be compared; one of the 3 functions of money

question

store of value

answer

an asset set aside for future use; one of the three functions of money

question

liquidity

answer

the ease with which an asset can be converted quickly into cash with little or no loss of purchasing power. money is said to be perfectly liquid, whereas other assets have a lesser degree of liquidity

question

M1

answer

the most narrowly defined money supply, equal to currency in the hands of the public and the checkable deposits of commercial banks and thrift institutions

question

Federal Reserve Notes

answer

paper money issued by the Federal Reserve Banks

question

token money

answer

bills or coins for which the amount printed on the currency bears no relationship to the value of the paper or metal embodied within it; for currency still circulating, money for which the face value exceeds the commodity value.

question

checkable deposits

answer

any deposit in a commercial bank or thrift institution against which a a check may be written

question

commercial banks

answer

a firm that engages in the business of banking (accepting deposits, offers checking accounts, and makes loans

question

thrift institutions

answer

a savings and loan association, mutual savings bank or credit unions

question

near-monies

answer

financial assets, the most important of which are non checkable savings accounts, time deposits, and U.S. short-term securities and savings bonds, which are not a medium of exchange but can be readily converted into money

question

M2

answer

A more broadly defined money supply, equal to M1 plus non checkable savings accounts (including money market deposit accounts), small time deposits (deposits less of $100,000) and individual money market mutual fund balances.

question

savings account

answer

a deposit in a commercial bank or thrift institution on which interest payments are received; generally used for saving rather than daily transactional a component of the M2 money supply

question

money market deposit account

answer

banks and thrift-provided interest-bearing accounts that contain a variety of short-term securities; such accounts have minimum balance requirements and limits on the frequency of withdrawals

question

time deposits

answer

a interest-earning deposit in a commercial bank or thrift institution that the depositor can withdraw without penalty after the end of a specified period

question

money market mutual fund

answer

interest-bearing accounts offered by investment companies, which pool depositors' funds for the purchase of short-term securities; depositors can write checks in minimum amounts or more against their accounts

question

legal tender

answer

a nation's official currency (bills and coins). Payment of debts must be accepted in this monetary unit, but creditors can specify the form of payment, for example \"cash only\"

question

Federal Reserve System

answer

the U.S. central bank, consisting of the Board of Governors of the Federal Reserve and the 12 Federal Reserve Banks, which controls the lending activity of the nation's banks and thrifts and thus the money supply

question

Board of Governors

answer

the seven member group that supervises and controls the money and banking system of the U.S.; the Board of Governors of the Federal Reserve System; the Federal Reserve board

question

Federal Reserve Banks

answer

the 12 banks chartered by the U.S. government to control the money supply and perform other functions

question

Federal Open Market Committe

answer

the 12 member group that determines the purchase and sale policies of the Federal Reserve Banks in the market for U.S. government securities

question

subprime mortgage loans

answer

high-interest rate loans to home buyers with above-average credit risk

question

mortgage-backed securities

answer

bonds that represent claims to all or part of the monthly mortgage payments from from the pools of mortgage loans made by lenders to borrowers to help them purchase residential property.

question

securitization

answer

the process of aggregating many individual financial debts, such as mortgages or student loans, into a pool and then issuing new securities (financial instruments) backed by the pool. the holders of the new securities are entitled to receive the debt payments made on the individual financial debts in pool

question

Troubled Asset Relief Program

answer

A 2008 Federal government program that authorized the U.S. Treasury to loan up to $700 billion to critical financial institutions and other U.S. firms that were in extreme financial trouble and therefore at high risk of failure

question

financial services industry

answer

the broad category of firms that provide financial products and services to help households and businesses earn interest, receive dividends, obtain capital gains, insure against losses, and plan for retirement; includes commercial banks, thrifts, insurance companies, mutual fund companies, pension funds, investment banks, and securities firms.

question

Wall Street Reform and Consumer Protection Act

answer

a law that gave authority to the Federal Reserve System to regulate all large financial institutions, created an oversight council to look for growing risk to the financial system, establish a process for the Federal government to sell off the assets of large failing financial institutions, provided Federal regulatory oversight of asset-backed securities, and created a financial consumer protection bureau within the Fed

question

moral hazard

answer

the tendency for financial investors and financial services firms to take on greater risks because they assume they are at least partially insured against losses.

question

What can be used as a form of money?

answer

anything that is accepted as a) a medium of exchange b) a unit of monetary account c) a store of value can be used as money

question

What does money represent?

answer

money represents the debts of government and institutions offering checkable deposits (commercial banks and thrift institutions) and has value because of the goods, services, and resources it will command in the market.

question

What does the U.S. banking system consist of?

answer

a) the Board of Governors b) the 12 Federal Reserve Banks c) some 6,800 commercial banks and 8,700 thrift institutions (mainly credit unions)

question

What are the major functions of the Fed?

answer

a) issue Federal Reserve Notes b) set reserve requirements and hold reserves deposited by banks and thrifts c) lend money to financial institutions and serve as the lender of last resort in national financial emergencies d) provide for the rapid collection of checks e) act as the fiscal agent for the Federal gov f) supervise the operations of the banks g) regulate the supply of money in the best interests of the economy

question

What intensifies the moral hazard problem?

answer

the TARP loans and the Fed's lender of last resort actions

question

quasi-public banks

answer

the 12 federal reserve banks, which blend private ownership and public control

question

bankers' banks

answer

the federal reserve banks

question

Primary Dealer Credit Facility

answer

provides overnight loans to primary dealers who are willing to post loan-backed securities as collateral

question

Term Securities Lending Facility

answer

lends U.S. securities to primary dealers for one-month terms to promote liquidity in the markets for these U.S. securities

question

Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility

answer

provides loans to U.S. banks and thrifts to finance their purchases of commercial paper from money market mutual funds

question

Commercial Funding Facility

answer

purchases commercial paper to support the commercial paper market and therefore the short-term credit needs of businesses

question

Money Market Investor Funding Facility

answer

provides funding support to a private-sector initiative designed to ensure the liquidity of U.S. money market mutual funds

question

Term Asset-Backed Securities Loan Facility

answer

helps households and business with their credit needs by providing funding support or asset-backed securities collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration

question

Interest Payments on Reserves

answer

bolsters the profitability of banks by paying interest on the reserves they hold in their vaults or in the Federal Reserve Banks

question

What percent of private banks are charted by the Federal government to operate nationally?

answer

25%

question

True or False: The Federal Reserve can make available a particular quantity of money and can change that amount through the policy tools.

answer

True

question

Federal Reserve Banks are not motivated by _____ like private firms

answer

profit

question

True or False: Society can attain a higher degree of specialization without the use of money than it can with money.

answer

False

question

___ enables society to gain the advantages of geographic and human specialization

answer

Money

question

The role of the US President with the confirmation of the Senate, is to appoint ____ Board of Governors members

answer

7

question

What are the benefits of the long-term appointments of Board members?

answer

-Experienced membership -Independence from political pressures that could result in inflation -Continuity

question

Like banks, what is required to keep a certain percentage of their checkable deposits as \"reserve\"?

answer

Thrift institutions

question

One-fourth of commercial banks that are charted by the Federal government are called:

answer

national banks

question

What describes a time deposit?

answer

- Financial institutions pay higher interest rates on time deposits than on MMDAs - A person will be severely penalized for withdrawing a time deposit prior to the withdrawal limitation date - A person can convert a 6-month time deposit to currency without penalty 6 months or more after it has been deposited

question

The central banks accept as ____ from the banks and thrifts any portion of their mandated reserves not held as vault cash.

answer

deposits

question

Prior to the centralization and public control of US banks, who was charged with creating and implementing nationally consistent banking policies?

answer

No single entry

question

The 12 Federal Reserve Banks implement the basic policy decisions of:

answer

The board of Govenors

question

Money enables society to gain which of the following advantage?

answer

Human specialization Geographic specilization

question

M2 only includes the MMMF accounts held by ___, not those held by businesses and other institutions.

answer

individuals

question

True or False: M1 is a narrow definition of the money supply and M2 is a broader definition that includes M1 along with several other relatively liquid account balances.

answer

True

question

Money market mutual fund companies use the combined funds of individual ___ to buy interest-bearing short-term credit instruments such as certificates of deposit and US government securities

answer

shareholders

question

M2 equals M1 plus

answer

saving deposits, including MMDAs, plus small (less than $100,000) time deposits plus MMMFs held by individuals

question

Cash is perfectly ___ while stocks, bonds, and real estate are less ____ than case

answer

liquid; liquid

question

A bakery worker receives money for labor rather than 200 bagels. This is an example of money as a medium of ___.

answer

exchange

question

When money is usable for buying and selling goods and services, it functions as a:

answer

medium of exchange

question

Holding money is a relatively risk-free way to store wealth when ___ is nonexistent or mild.

answer

inflation

question

What provides checkable deposits?

answer

Commercial Banks Savings institutions

question

Who influences the interest rate by making an amount of money available that is consistent with high and rising levels of output and employment and a relatively constant price level?

answer

The Federal Reserve Bank

question

If Megan writes a check on her San Francisco bank to Aaron, who deposits it in his Cleveland bank, how does the Cleveland bank collect the money represented by the check drawn against the San Fran bank?

answer

Using the Federal Reserve Banks

question

On the day after the September 11, 2001 attacks, the ____ lent 45 billion to U.S. banks and thrifts as the \"lender of last resort\".

answer

Federal Reserve Bank

question

Just as banks and thrifts accept the deposits of an make loans to the public, the ___ accepts the deposits of and makes loans to banks and thrifts.

answer

central bank

question

Money supply, M1 equals ____ plus checkable deposits.

answer

currency

question

Why are checkable deposits of the US Treasury or the Federal Reserve that are held by commercial banks or thrifts excluded from the money supply?

answer

To enable a better assessment of the amount of money available to the private sector for potential spending

question

___ aids rational decision making by enabling buyers and sellers to easily compare the prices of various goods, services, and resources.

answer

Money

question

The fact that money cab be available to use at a future date explains which function of money?

answer

Store of value

question

___ is a \"stock\" of some item or group of items

answer

money

question

Governments make sure that the face values of token money exceed the ___ values of currency in order to discourage people from destroying coins and bills to resell the material that they are made of.

answer

intrinsic

question

A ___ crisis in 1907 pushed the US Congree to appoint a Commission whose report eventually led to the Federal Reserve Act of 1913.

answer

banking

question

How many Federal Reserve banks are there in the United States?

answer

Twelve

question

When money is used as a yardstick for measuring the relative worth of goods or services it is functions as a:

answer

unit of account

question

People store some of their wealth as ___ in order to buy things later.

answer

money

question

What comprises the currency of the United States?

answer

Metal Coins Paper Money

question

The central authority of the US money and banking system is the _____ of ____ of the Federal Reserve System

answer

Board; Governors

question

Why do governments make sure that the face values of currency exceed the intrinsic values of currency?

answer

To discourage people from destroying currency to resell the material it's made of

question

Political pressure on Congress and the executive branch may result in inflationary fiscal policies, including what?

answer

Tax cuts Special-interest spending

question

What did Congress decided was essential for an efficient banking system?

answer

Public control Centralization

question

Who sets reserve requirements, which are the fractions of checking account balances that banks must maintain as currency reserves?

answer

The Fed

question

The Fed acts as the ___ agent (provider of financial services) for the Federal government.

answer

fiscal

question

The Federal Reserve Banks deal with

answer

Thrifts Commercial banks Government

question

Congress purposely established the Federal Reserve Banks as a(n) ___ agency of government

answer

independent

question

What is the interest rate charged on loans from the Fed to banks and thrifts in their district?

answer

Discount rate

question

What are the functions that the Federal Reserve Banks perform?

answer

- Setting reserve requirements and holding reserves - Lending money - Providing for check collection - Issuing currency

question

Lobbying groups and citizens would pressure elected officials to keep interest rates low even though at times high interest rates are necessary to reduce AD and thus control inflation, if who controlled the nation's monetary policy?

answer

Congress and the executive branch

question

___ banks are private banks charted by the individual states to operate within those states.

answer

State

question

True or False: Each Federal Reserve Bank is owned by the federally-charted banks in its district.

answer

True

question

____ institutions are regulated by agencies in addition to the Board of Governors and the Federal Reserve Banks

answer

Thrift

question

What are the reasons that the Fed makes periodic examinations of banks?

answer

-To ascertain that banks perform in accordance with regulations -To assess bank profitability -To uncover questionable practices

question

If Congress and the executive branch also controlled the nation's monetary policy, citizens and lobbying groups would pressure elected officials to keep the interest rates low, even though at times high interest rates are necessary to reduce AD and thus control ____.

answer

inflation

question

When people measure the worth of various items in terms of money, money is performing the function of a what?

answer

unit of account

question

The Federal Reserve Banks are \"bankers' banks\" because they:

answer

-make loans to banks and thrifts -accept the deposits of banks and thrifts

question

A second and broader definition of money includes

answer

M1 plus several near-monies

question

What characterizes an MMDA

answer

-Interest bearing -Containing a variety of short-term securities

question

The 12 Federal Reserve Banks are quasi-public banks, which blend ___ ownership and public control

answer

private

question

The US' 12 Federal Reserve Banks act as a central bank because their policies are coordinated by ___?

answer

the Fed's Board of Governors

question

What serves as bankers' banks?

answer

The 12 Federal Reserve Banks, collectively known as the Central Bank.

question

The Board of Governors (with the aid of the Federal ___ ___ Committee make the basic policy decisions that provide monetary control of the US money and banking system.

answer

open market

question

An ___ ___ is easily converted quickly into the most widely accepted and easily spent form of money, cash, with little or no loss of pucharshing power.

answer

Asset's Liquidity

question

What is a function of money?

answer

- Unit of Account - Store of value - Medium of exchange

question

___ ___ are certain highly liquid financial assets that do not function directly or fully as a medium of exchange but can be readily converted into currency or checkable deposits

answer

Near Monies

question

M1 and M2 are components of the ___ supply

answer

money

question

In the US, the monetary authorities are members of the Board of Governors of what?

answer

Federal Reserve System

question

Who controls the lending activity of the nation's banks and thrifts?

answer

12 Federal Reserve Banks

question

Federally charted banks are required to purchase ______ of the Federal Reserve Bank in their district.

answer

stock

question

What are components of M1?

answer

All checkable deposits Currency in the hands of the public

question

Because money is a medium of exchange, society avoids:

answer

barter

question

Cash is perfectly ___?

answer

liquid

question

What are examples of assets other than money that hold wealth?

answer

Real estate Gold Stocks Bonds collectible items such as fine arts or comics

question

The Fed's major goal is to control the ____ ____.

answer

money supply

question

True or False: Federal Reserve Banks compete with commercial banks

answer

False

question

Who issues U.S. paper currency?

answer

The Federal Reserve Banks

question

What is meant by the term \"thrifts\"?

answer

Mutual saving banks Savings and loan associations Credit unions

question

The purpose of the open-market operations is to control the nation's money supply and influence ___ ___.

answer

interest rates

question

The FOMC meets regularly to direct the purchase and sale in the open market of government securities such as:

answer

Bills Notes Bonds

question

Where is the location of the Federal Reserve Bank which conducts most of the Fed's open-market operations?

answer

New York City

question

The safety and convenience of ___ has made checkable deposits a large component of the M1 money supply.

answer

checks

question

How long are the terms of the chairperson and vice-chairperson of the Board of Governors?

answer

4 years

question

The ____ selects the chairperson and vice chairperson of the Board of Governors from among the members.

answer

president

question

True or False: In terms for Board of Governors members, one member is replaced every 2 years.

answer

True

question

True or False: In terms for Board of Governors members, all members are replace simultaneously.

answer

False

question

True or False: In terms for Board of Governors members, one member can only have 1 term.

answer

False

question

True or False: In terms for Board of Governors members, their terms last for 14 years.

answer

True

question

People can convert __ __ into paper money and coins on demand.

answer

checkable deposits

question

What characteristics of checks has made checkable deposits a large component of M1 money supply?

answer

Convenience Safety

question

The Fed has the ultimate responsibility for regulating the supply of ___

answer

money

question

Commercial bank operations are supervised by the?

answer

Federal Reserve banks

question

How is the Federal Reserve Bank able to influence interest rates?

answer

By controlling the money supply

question

What is the roles of commercial banks

answer

Makes available for a wide variety of loans Keeps money safe until demanded via checks Accepts deposits of households and businesses

question

What are the functions of commercial bank loans?

answer

Finance consumer purchases of durable goods Provide short-term financial capital to businesses

question

Studies show that countries that have independent central banks, such as the Federal Reserve Bank, compared to those that have little or no central bank independence, have lower average rates of ___

answer

inflation

question

___ established the Fed as an independent agency of government to protect the Fed from political pressures so that it could effectively control the money supply and maintain price stability.

answer

Congress

question

Why is currency held by the US Treasury, the Federal Reserve Banks, commercial banks, and thrift institutions excluded from M1 and other measures of the money supply?

answer

To avoid counting the same amount of value twice.

question

Metal coins are issued by the US

answer

Treasury

question

What is the difference between how coins and paper money are issued?

answer

Coins are issued by the US Treasury, while paper money is issued by the Federal Reserve System.

question

____ ___ are primary depository institutions that accept deposits of households and businesses, keep money safe until it is demanded via checks, and in the meantime use it to make available a wide variety of loans.

answer

Commercial Banks

question

What is the relationship between commercial banks and thrift institutions?

answer

Thrift institutions supplement commercial banks

question

What functions money?

answer

-It serves as a yardstick for measuring the relative worth of things -Something that enables people to transfer purchasing power from the present to the future -Anything that is usable for buying goods and services.

question

Money is a _____ that is usable for buying and selling goods and services

answer

medium of exchange

question

Money serves as a _____ that enables people to transfer purchasing power from the present to the futures.

answer

store of value

question

What are the problems that occurred with decentralized, unregulated banking, which led Congress to decide that centralization and public control were essential for an efficient banking system?

answer

Numerous private bank notes being used as currency Episodes of monetary mismanagement by banks

question

A banking crisis could emerge when individual and businesses who have lost confidence in their banks attempt to simultaneously __ all of their money.

answer

withdraw

question

The banking crisis of 1907 inspired the creation of:

answer

Federal Reserve Act of 1913

question

Saving and loan associations are example of what?

answer

thrift institutions

question

Thrift institutions supplement

answer

commercial banks

question

The ___ of the United States consists primarily of metal coins and paper money.

answer

currency

question

When individuals and businesses lose confidence in their banks and attempt to simultaneously withdraw all of their money, what could emerge?

answer

a banking crisis

question

The Federal Reserve Banks do not deal with the ___ but, rather, they interact with the government, commercial banks, and thrifts.

answer

public

Money, Banking, and Financial Institutions Chapter 14

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