Unit 4: Public Policy and Economy — Worksheet Questions

Which of the following accurately completes the graphic showing three connected bubbles labeled Medium of exchange, Store of value, and Standard or measure of value, with a center bubble marked ?

• Characteristics of money

• Types of money

• Functions of money

• Federal Reserve notes

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 —

• fiat money

• credit

• representative money

• currency

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

Read the excerpt: “As soon as practicable, the Secretary of the Treasury, the Secretary of Agriculture and the Comptroller of the Currency, acting as ‘The Reserve Bank Organization Committee,’ shall designate not less than eight nor more than twelve cities to be known as Federal reserve cities, and shall divide the continental United States, excluding Alaska, into districts, each district to contain only one of such Federal reserve cities. The determination of said organization committee shall not be subject to review except by the Board of Governors of the Federal Reserve System when organized: Provided, That the districts shall be apportioned with due regard to the convenience and customary course of business and shall not necessarily be coterminous with any State or States. The districts thus created may be readjusted and new districts may from time to time be created by the Board of Governors of the Federal Reserve System, not to exceed twelve in all. Such districts shall be known as Federal reserve districts and may be designated by number.” —Federal Reserve Act, 1913. Based on the excerpt, the Federal Reserve System designed in the manner described above resulted in the creation of—

• reserve bank satellite locations

• a decentralized system of banks

• new methods for printing money

• one large depository for U.S. currency

Which of the following best completes the center label in a graphic showing four connected bubbles that read “Nationally chartered bank members,” “President appoints chair,” “Board Members serve 14 year terms,” and “12 Districts,” all pointing to a central question mark?

• Treasury Department

• Stock Exchange

• Washington, D.C.

• Federal Reserve System

One way the Federal Reserve can counter unemployment and stimulate spending is by—

• buying government securities from banks and the public

• raising the reserve requirement for member banks

• selling government securities to reduce the money supply

• increasing the discount rate charged to banks

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

• money in the economy

• minimum wages of workers

• cost of doing business

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