1. What is the best definition of legal tender?

a medium of exchange that the government has officially declared to be money

money that is in the form of metallic coins and printed paper

money that is backed by the gold standard

a medium of exchange that has been established through custom or tradition

2. Until 1933, the U.S. dollar was backed by the ______.

word of the government

silver standard

gold standard

standard of living

3. Banks create money by ______.

investing in stocks

making loans

charging interest

paying interest

4. The Federal Reserve uses ______to limit how many loans banks can make and to make sure that banks keep a certain percentage of their deposits available to customers.

reserve requirements

capital requirements

deposit insurance

loan size limits

5. Banks can use ______ to make loans to borrowers.

required reserves

secondary reserves

excess reserves

primary reserves

6. The amount of money that can potentially be generated from each dollar of new deposits is measured by the ______.

discount rate

required reserve ratio

interest rate

money multiplier

7. Which statement about the structure of the Federal Reserve System is true?

It is made up of 55 linked banks located in the eastern states.

It is a single bank located in Washington D.C.

It is a single bank located in New York.

It is made up of 12 separate banks spread around the country.

8. In the United States, the Monetary Policy decisions of the Fed are made by the ______.

banks that have ownership of the Fed

president of the United States with approval from the Senate

banks that comprise the Fed

Federal Reserve Board of Governors and the FOMC (Federal Open Market Committee)

9. What is the discount rate?

the interest rate banks charge each other for reserves borrowed from another bank

the amount of cash banks must keep on hand at any given time

the interest rate charged to banks on reserves borrowed from the Federal Reserve

the interest rate the Fed pays on reserves stored in the federal funds market

10. What is the newest money supply tool available to the Fed?

the interest rate paid on reserves held at the Fed

open market operations

the discount rate

the reserve requirement ratio

11. Which statement about money is true?

Aside from precious metals, commodities cannot be considered money.

To qualify as money, currency must be officially recognized by a government.

As long as it is generally accepted in exchange for services and goods, anything can be money.

The term money refers to metallic coins and paper currency legally designated by some institution.

12. Chara pays Jim $2 and receives a cup of coffee in return. This demonstrates money's function as a ______.

unit of account

medium of exchange

store of value

means of deferred payment