Money and The Federal Reserve Test Review

Which of the following accurately completes the graphic?

• Types of money

• Federal Reserve notes

• Characteristics of money

• Functions of money

Commodity money can best be described as —

• trade goods or services between two people without the exchange of money

• currency that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves

• a form of money which has an intrinsic value, meaning it is worth something in its own right rather than simply being a token of financial value

• money that consists of a token or certificate that can be exchanged for a specific good, such as gold, silver, or potentially water, oil, or food

Money that has value simply because the government says it does is called —

• credit

• currency

• fiat money

• representative money

One of the disadvantages of operating a barter system is that trading is —

• taking place without currency

• carried out in very large markets

• limited by availability and demand

• conducted without consumer protections

One advantage to using a debit card is that it allows the user to —

• build a strong credit score

• repay credit card debts faster

• access currency without carrying cash

• purchase goods without having any money

Which of the following best completes the graphic?

• Stock Exchange

• Federal Reserve System

• Treasury Department

• Washington, D.C.

In order to require banks to hold more money as opposed to lending it, the Federal Reserve can —

• decrease the discount rate

• decrease the federal funds rate

• increase the reserve requirement

• suspend the federal funds rate target

Open market operations, the discount rate, and reserve requirements are used by the Federal Reserve to most directly affect the —

• amount of taxes collected

• minimum wages of workers

• cost of doing business overseas

• supply of money in the economy

During an economic recession the Federal Reserve Banks will most likely react by —

• easing monetary policy making it easier to lend money

• raising the discount rate to affect the monetary supply

• tightening monetary policy making lending more difficult

• reducing open market transactions to reduce the money supply

Which scenario is most likely to result when the Federal Reserve raises the reserve requirement?

• More money is required to be kept in banks to loan out to businesses, so they can invest in their companies.

• More money is required to be kept in bank reserves, and less is available to be loaned out to businesses to invest in the economy.

• More money is required to be kept in the Federal Reserve banks to make it available for loans to member banks in poor economic times.

• More money is required to be kept in the Federal Reserve banks, which increases the amount of money in circulation and stimulates the economy.