Module 6: Understanding the Banking System Review

Which of the following is an example of how money is used today?

• Farmer Jones trades his chickens in return for shoes for his family.

• Alice uses gold coins to buy clothing.

• José trades his paper receipt to get his car washed.

• Alicia gives $20 of paper money to the pharmacist for medication.

Aubrey dropped his quarter on the street and it got run over by a bike rider. Because the money is _____ it was not destroyed.

• durable

• portable

• limited

• divisible

Which of the following does not factor into how money is limited?

• Only the government can print money.

• The government controls the amount of money in circulation.

• Only the government can coin money.

• Money can be divided into smaller amounts in various ways.

Which of the following is true about fiat money?

• It is paper money that is backed by gold from the government.

• It is the type of money used for the U.S. dollar.

• It is only considered an acceptable payment by some U.S. businesses.

• It is used for purchases like food but not to pay debts.

Since money is a _____ you can use it to buy goods and services.

• medium of exchange

• store of value

• unit of account

• controlled currency

Which of the following is the best example of money being a store of value?

• If you have $20 you could use it today or in a month from now to buy a new pair of sunglasses.

• You can trade a $10 bill for lunch at a fast food restaurant.

• You can compare the value of every laptop in the store when choosing the best one for you.

• You can sell your old lacrosse stick for the best price and use that money to buy a new video game.

The Federal Open Market Committee (FOMC) makes decisions that influence the amount of money and credit, known as the _____, in the U.S. economy.

• money supply

• government securities

• interest rates

• bank runs

What happens when the Fed raises interest rates?

• Consumers borrow and spend less money.

• Business borrow and spend more money.

• The economy will grow.

• Loans become cheaper.

By monitoring interactions between investors, savers, borrowers, and businesses, the Fed is trying to _____.

• stabilize the U.S. financial system

• give consumers a forum to file their complaints about financial institutions

• keep interest rates low

• act as the "bank" to local banks

Which of the following is not true about the Fed?

• It broke apart the centralized bank that operated in the U.S. and created national banks that act independently.

• It prevents banking disasters that cause people to panic.

• It is under the control of Congress.

• It is outside of political influence.