Question 1

Louis owns an import business. After traveling to France on numerous occasions, he developed a taste for fine French wines. A radio report that he heard this morning indicated that the dollar has fallen sharply against the euro. Based on this information, Louis expects that:

Accepted Answer

A falling dollar means that it takes more dollars to equal one euro. This means that imports from Europe, including French wine, will become more expensive for American consumers. Therefore, French wines will become more expensive in the United States.

Question 2

By the time of the Civil War, the U.S. banking system operated:

Accepted Answer

Prior to the Civil War, the U.S. banking system was fragmented with different banks issuing different types of currencies. There was no central banking system in place and the regulation of banks was left to individual states. It was only after the Civil War that efforts were made to establish a more centralized and efficient banking system, eventually leading to the creation of the first Federal Reserve System in 1913.

Question 3

Chipper's Golf Resort plans to use famous Kauri wood from New Zealand for parts of the interior of the magnificent club house at its new golf resort near Portland, OR. According to the importer, each ten-foot slab will cost Chipper's approximately $5,000. Looking at the exchange rates, Chipper's finance director noted that $500 US dollars = $738 NZ dollars. The importer will order directly from his source in New Zealand. Chipper's finance director has determined that:

Accepted Answer

The exchange rate of $500 US dollars = $738 NZ dollars means that the US dollar is strong compared to the New Zealand dollar. This means that Chipper's can get more NZ dollars for their US dollars, making the wood more affordable. Therefore, it is a good time for Chipper's to buy the wood.

Question 4

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

Accepted Answer

The reserve requirement is the percentage of deposits that banks are required to hold in reserve. In this case, the reserve requirement is 12 percent of $200 million, which equals $24 million. Therefore, Megabux National must hold reserves of $24 million against its deposits.

Question 5

Which of the following statements most accurately represents the history of U.S. banking?

Accepted Answer

The U.S. banking system has experienced a great deal of change and instability throughout its history, including the establishment of the Fed as well as numerous technological and regulatory developments.

Question 6

The banking panic of 1907 and the resulting cash shortage led to the formation of the:

Accepted Answer

The banking panic of 1907 highlighted the need for a central banking system in the United States to stabilize the financial system. This led to the formation of the Federal Reserve System in 1913.

Question 7

Early settlers of the New World relied heavily on barter because:

Accepted Answer

The answer of Early settlers of the New World relied...

Question 8

One of the most important aspects of the banking legislation passed during the 1930s was that it established:

Accepted Answer

The establishment of federal deposit insurance was among the most important aspects of the banking legislation passed during the 1930s. This insurance protects bank depositors in the event that their bank fails and ensures that they do not lose their money.

Question 9

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

Accepted Answer

When Mr. Smith uses a check, his bank, Mr. Brown's bank, the Federal Reserve Bank, and the clearinghouse all become involved in the transaction, totaling to four banks.

Question 10

________ persuaded Congress to establish the first central bank in the United States

Accepted Answer

Alexander Hamilton persuaded Congress to establish the first central bank in the United States.

Question 11

Which of the following historical events motivated Congress to establish the Federal Reserve System?

Accepted Answer

The banking panic and cash shortage of 1907, which resulted in many bank failures and the stock market crash, motivated Congress to establish the Federal Reserve System as a way to prevent future economic crises.

Question 12

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:

Accepted Answer

If President Dude carries out his plan by rapidly increasing the supply of money, it will lead to an increase in the money supply relative to the supply of goods and services, causing the value of money to decrease. This results in an increase in the general price level, which is inflation. Therefore, the likely outcome of President Dude's plan is an increase in the rate of inflation.

Question 13

As a response to the bank failures of the ________, a system of federal deposit insurance was established to strengthen the banking system

Accepted Answer

The Great Depression caused widespread bank failures which led to the establishment of federal deposit insurance to protect customers' deposits and rebuild confidence in the banking system.

Question 14

The Fed plans to raise the discount rate to 6%. This indicates that:

Accepted Answer

The discount rate is the interest rate at which banks can borrow funds directly from the Federal Reserve. By raising the discount rate to 6%, it means that banks borrowing funds from the Fed will now have to pay 6% on the amount they borrow.

Question 15

News reports indicate that the Fed plans to announce its third increase in the discount rate in the past five months. Additional 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:

Accepted Answer

The Fed's decision to increase the discount rate and potentially increase the reserve requirement suggests that they are trying to combat inflation, which is the persistent increase in prices across the economy. By increasing the cost of borrowing, the Fed aims to limit the amount of money in circulation and therefore reduce demand, which should ultimately help stabilize prices.

Question 16

The Fed bought several billion dollars worth of U.S. government securities. The purpose of this action is to:

Accepted Answer

The Fed buying government securities increases the amount of money in circulation. This is done to stimulate the economy by making it easier for banks to lend money, thus encouraging investment and spending.

Question 17

Historically, there was ________ a central bank in the U.S

Accepted Answer

There was significant resistance to the establishment of a central bank in the U.S. for much of its early history, particularly from those who feared giving the federal government too much power over the economy.

Question 18

Under the Federal Reserve Act of 1913:

Accepted Answer

Under the Federal Reserve Act of 1913, federally chartered banks were required to join the Federal Reserve System. State-chartered banks were given the option to join or not, but if they did choose to join, they were subject to the same regulations and requirements as federally chartered banks.

Question 19

The Federal Reserve fulfills its role as a "lender of last resort" when it loans funds to:

Accepted Answer

The Federal Reserve acts as a lender of last resort for banks during banking emergencies, providing them with funds to avoid a liquidity crisis that could lead to a collapse of the banking system. This helps stabilize the economy by preventing widespread financial panic.

Question 20

The Federal Reserve represents a "bankers' bank" because:

Accepted Answer

The Federal Reserve holds the deposits of commercial banks and makes loans to banks that need additional funds, acting as a "lender of last resort" for banks experiencing financial difficulties. Therefore, it serves as a "bankers' bank."

Quiz 20: Money, Financial Institutions, and the Federal Reserve