Download Unit 7 Notes/Study Guide

Name __________________________
Free Enterpri$e $tudy Guide #7
Money, Banking, and the Federal Re$erve $y$tem
1.
_________________ is anything people commonly accept in exchange for goods or services. The
exchange of goods and services without using money is known as ___________________.
2.
a)
b)
c)
Three types of money used in the U.S. today are:
--refers to both coins and paper bills; most nations in the world today use this as money
--aka. demand deposits because they are payable to holder of check on demand.
--includes financial assets such as _______________ and _________________. They
cannot be used directly to buy goods and pay debts, but can be converted to cash easily.
3.
All paper currency is printed by the U.S. government at the ___________________________, located in
_______________. At one time, the Bureau of Engraving printed paper currency in the denominations of $____,
_______, ______,_____, and________. All denominations of $_______and higher were discontinued in ______.
4.
All U.S. coins are made by the _______________________. In the U.S., coins are minted in
__________________, ____________________, and _____________________.
5.
The study of money is useful because it helps determine the characteristics that give money its
_______________________. Three functions of money are:
--a tangible way to pay for things.
--a way to measure the worth of what is bought and sold.
--can be saved or stored for later use (in a piggy bank or a real bank).
6.
To be a successful ___________________, money must have the following characteristics:
--can be used over and over again.
--can be carried from one place to another easily.
--can be divided into smaller units.
--keeps its value over a long period of time.
--people are willing to accept it in exchange for goods or services.
7.
A major challenge of using paper currency as a medium of exchange is ______________________.
Since the development of sophisticated color copiers, some have tried to ____________________ or
create bogus dollars. The _____________________ is the agency is in charge of combating this problem. To
prepare against potentially massive counterfeiting, newer paper currency is now being produced with
_________________, and a ______________________________, and in _____________________________.
The counterfeiting of U.S. dollars is not only a national problem, but it is also an _____________________
problem as U.S. counterfeit bills known as __________________________ are being produced in the Middle
East by ________________________ organizations to fund their activities.
8.
Three categories of money are:
--has value of its own AND is also used as money EX:
--has value only because it can be exchanged for something valuable.
--has value only because the government says it does. (see #9) EX:
EX:
9.
In 1900, Congress passed the ___________________ Act which established the ___________________,
a monetary system in which paper money is fully backed and convertible into gold. The U.S. officially went off the
gold standard in _______. Now, U.S. dollars are backed by _________________.
10.
At one time banks were controlled by the ________________ in which they were located. Then in 1863,
Congress passed the ____________________________________. This act set up a system of nationally
chartered banks, all of which were controlled by the _____________
government. All banks that became
part of this _________________________________ had to fulfill two requirements:
1)
include the word “______________________” as part of the bank’s name
2)
pass stiff ________________________ by the ______________________ of currency.
The government didn’t force state banks to become part of this system, but they taxed those who didn’t. Those
banks who didn’t join and were forced to pay the tax made the tax money back by creating a new type of account,
the __________________________________ for which they charged their customers a fee. Though banking
customers were skeptical at first, they soon decided that the convenience of a ___________________________
was well worth the fee. Due to the success of this new account, many banks remained chartered by their states
rather than become part of the national banking system, and it is still that way today.
11.
a)
b)
Banks, whether state or nationally chartered, fulfill two needs in a community:
12.
Many banks today offer other services beyond checking and savings accounts and loans. They also
provide opportunities for ______________________ and ____________________________, the security of
__________________________________________, and other services like _________________________,
______________________, and even _____________________________.
13.
While banks offer clients safety, security, and convenience today, such was no always the case. At the
start of the Great Depression (1929), the worst economic period in our nation’s history, there
were @ ________________ banks in the U.S. None of them had any deposit ________________________ for
the money customers had placed there on deposit. When the Depression hit and lasted for several years, many
people lost faith in the ________________________ and many ________________________ all of their funds
from government controlled banks. At that time, if a person had ___________________ on deposit in the
_______________ and the bank ___________________, it meant that he ________________________he had
in the bank and had no way to recover it. This led to widespread ___________ which caused a rush by even
more depositors to withdraw their funds from a bank before it failed too. This was known as a _______________.
Thousands of people lost their ________________ as a result of the economic crisis, and confidence in the
banking system was ___________________.
14.
To restore public confidence in the economy, _________________________ , the newly elected
president at that time, declared a ____________________on March 5, 1933, closing all of the nation’s banks until
further notice. This “holiday” gave federal auditors time to judge the _______________ of these banks. Sound
banks were reopened within a few _____________. Congress also established the _______________________
_________________ or FDIC which insured savings accounts up to $_________. This was raised to
$_________ in 1935, and today depositors’ money is insured up to $___________ for each account—that is, as
long as the bank is a member of the Fed, and most are.
15.
More recent changes that have occurred in banking include:
--government lifted its restrictions on banking industry, resulting in more
competition and interstate banking—led to large banking firms buying up smaller
hometown banks.
--using computerized banking systems, including ATM’s _________________________,
______________________ (linking home PC’s with bank’s computers), and
__________ cards, all of which shorten _______________ (time it takes for a
check to clear or a credit card purchase to be posted to your account)
16.
The three most common types of financial institutions in the U.S. today are ___________________,
________________________, and ________________________.
17.
The main functions of commercial banks are to ____________________ and to accept _________
______________________ from businesses, other financial institutions, and individuals.
18.
_______________________ also lend money and accept deposits. They were originally established as
_______________________ societies. Nearly ____% of the loans they make today are still used to buy homes.
19.
_________________________ are financial institutions which are owned and operated by their
___________________________. The members are usually _________________ of large businesses,
members of ___________________________, or other such organizations. In Bossier City, two large credit
unions are _________________________(originally established for the members of the Armed
Forces stationed at BAFB) and ____________________________ established for the teachers and students and
other _____________ and _________________ government workers. Credit unions usually offer ___________
interest rates on savings and _______________interest rates on loans than other financial institutions. Although
their assets are relatively small, credit unions ______________________ other types of financial institutions.
20.
Because of expanding trade in recent decades, __________________________ banking has grown. In
1960 only _____ U.S. banks had foreign branches, but by 1998 _____ U.S. banks had foreign branches,
________ branches in all. Likewise, ______________ banks have branches in the U.S.. In 1975, ___ foreign
banks operated in the U.S., accounting for _________ of U.S. bank assets. Today there are over ________
foreign owned banks from more than _____ different countries, accounting for _______ of all banking assets. By
mid-1998, foreign banks operated more than _________ branches in the U.S. In addition, foreign banks owned
shares of many large _________________.
21.
In ______ Congress created the ______________________________, commonly referred to as the
________. This system served as the nation’s first true _____________________________. It serves as a
central bank for both the _____________________________and for ________________________. It is the job
of The Fed to provide a number of major services that strengthen the nation’s ____________________ and
_____________ systems.
22.
a)
b)
c)
d)
e)
In its role as a central bank, the main services the Fed provides for the federal government are:
Serves as the __________________________________
Supervises and regulates member _____________________ to keep them __________________
Distributes _______________________
Regulates the ________________________ (controls the amount of money in economy available to
spend, save, and borrow)
Monitors ____________________ banks
23.
In its role as a central bank, the main services the Fed provides for banks are:
a)
Processing and clearing __________________________
b)
Providing _________________________________, allowing banks to _______ more than they have on
_________________.
24.
Some describe The Fed as a “_____________ for __________.” Although the Fed is owned by the
________________________________ that use its services, it is the _________________________ who
appoints its managers with the approval of Congress. The new chairman of the Fed is ___________
_______________ who recently replaced the longtime chairman and legend _________________________;
Greenspan had served for nearly twenty years as chairman.
25.
Currency issued by the Federal Reserve is called __________________________. The Fed watches
over the banking system through ___ Federal Reserve banks, each representing a section of the United States.
There is a branch located in ___________________, LA, however, the branch that serves the Bossier City
area is located in ____________. Each district bank is represented by ______________ and a _________.
Dallas is in district #____ and ____ is the _____th letter in the alphabet, so currency issued by that branch will
bear that letter.
26.
Serving as the government’s bank, the Fed’s most important function is overseeing the
_______________________-- the amount of money that is in circulation at any given time. This amount
influences ____________________, ________________________, __________________________ and more.
27.
In order to ______________ the money supply, the Fed must have a way to ______________ the money
supply. Four ways in which the government measures the supply of money are __________, ______________,
_______________, and ____________. (Please take the time to read about these on pages 378-379.)
28.
Assisting the Fed’s chairman, _________________________, are two important decision-making bodies
at the Fed--the ________________________ and the ___________________________________(FOMC). The
________________ of the U.S appoints, and the ________________ confirms, the ______ members of the
Board of Governors. The members of the Board of Governors are all members of the FOMC. The job of the
Board of Governors is to set _________________________ for the Fed and member banks to follow, to regulate
_____________________________, and to __________________ on the state of the economy each year to
_______________________. They also issue a _______________________ bulletin that reports on national and
international monetary matters. The job of the FOMC is to make decisions about the size of the
____________________ and about _______________________. This committee meets _______ times a year
to review the state of the economy and make decisions about the cost and availability of ______________.
Additionally, the Fed has a ___________________________ which is comprised of one representative from each
of the _______________ regional Federal Reserve Banks. They meet ______________ times a year to provide
information to the Chairman, the FOMC, and the Board of Governors concerning the ______________________
of the economy.
REPEAT: The Fed’s most important function is overseeing the ______________________.
29. ______________________________ is the policy formulated by the Fed to ____________ the amount of
__________________ and ______________ available in the economy. The two monetary policies practiced by
the Fed are:
--increases total ____________________________, promotes ____________________,
and puts more money into _____________________.
--decreases total _____________________, slows the rate of ______________________,
and ______________________________ of circulation.
30.
To promote economic growth, the Fed ________________ interest rates and encourages people and
businesses to _______________ money. This in turn _______________ spending. The Fed usually adopts this
policy when the business cycle is _______________________________.
31.
To slow down economic growth, the Fed ________________ interest rates and discourages people and
businesses from _________________ money. This in turn ________________ spending. The Fed usually
adopts this policy when the business cycle is ___________________________________ and it wants to
________________ prices and/or avoid _______________________.
32.
The three key components of the Fed’s monetary policy (the tools they have to work with) are:
--percentage of money banks must _______________________in their own
vaults or at the district Federal Reserve Bank.
--__________________ the Fed charges _________________ for the use of
its money.
--the buying and selling of _____________________________ (savings
bonds, T-Bills)
33.
When the Fed ____________________ the reserve requirement, it means banks have ______________
to ____________________. When the Fed _________________ the reserve requirement, it means banks have
_______________________ to lend. Lowering the reserve requirement is an example of the Fed exercising a
_____________________ monetary policy. Raising the reserve requirement is an example of the Fed exercising
a ____________________ monetary policy.
34.
When the Fed lowers the discount rate, it means banks make more _____________, because more
_________________ qualify at _________________ interest rates.
35.
When the Fed raises the discount rate, banks must _________________________________ by raising
interest rates on loans to customers, including the ___________________, which is the rate banks charge for
loans to their best business customers. When interest rates are higher, businesses must _________________
in order to offset this increase in operating expenses. Therefore, when interest rates rise consumers are affected
in two ways: they ____________________ and they pay __________________. People tend to use the interest
rate as a measure of the _______________________ of the economy. In particular, they think the economy is
______________________ when interest rates are _________________. And since people tend to judge the
effectiveness of _______________________ by the state of the ________________, elected officials are not
pleased when the Fed allows _________________________, particularly during an ______________________
year.
36.
When the Fed is exercising a _______________ money policy and wants to _____________________
into the economy, the Fed tends to use its most important tool, __________________. The Fed ____________
___________________________________ (T-bills, savings bonds) which _____________________ the amount
of money deposited into ___________________________. Likewise, when the Fed is exercising a
___________money policy and wants to _______________________ the money supply, they ______________
T-bills and savings bonds which takes money ________ of the money supply.
37.
The Fed has many important considerations to make when applying monetary policy. A wrong decision
could cause chaos in the economy. One major consideration is ______________________, which is the time
that passes between the policy decision when the decision is put into action.
38.
Because of the control it has over the interest rate, the Fed often comes under a great deal of
__________________________ by politicians. The President, for example, can influence the monetary policy by
_____________________________________ to the Federal Reserve Board who are favorable to his policies.
39. Some Presidents have tried to increase control by __________________ the Fed. Others have threatened
to introduce ________ to make the Fed less _____________________. Nevertheless, the Fed is often reluctant
to accommodate demands for _______________________ because of the fear of ___________________.
Unlike politicians who insist on lower interest rates during an ___________________, the Fed is more concerned
about the health of the economy in the ______________________.