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DSST Money and Banking Study Guide

Updated: Aug 18



Our DSST Money and Banking study guide is the perfect study tool to help introduce you to this subject.

This guide contains detailed information on all the topics you will be tested on, so you can be confident that you are up to speed.


Table of Contents

  1. The Role and Kinds of Money

  2. Commercial Banks and Other Financial Intermediaries

  3. Money and Macroeconomic Activity

  4. Central Banking and the Federal Reserve System

  5. Monetary Policy in the United States

  6. The International Monetary System

  7. Conclusion

  8. Student Resources

  9. References


1. The Role and Kinds of Money


DSST Money and Banking Exam Outline. The Role and Kinds of Money – 5%.
The Role and Kinds of Money – 5%

Money


Money is challenging to define, as it can take many forms.


Generally speaking, money is an asset that can be used for goods or services.


This includes physical assets like cash and coins and non-physical assets like stocks and bonds.


Money can also be considered a unit of account, a store of value, or a means of exchange.


Each function is essential in understanding money's role in our economy.


Physical Assets


Physical assets like cash and coins are the most common form of money and play an essential role in day-to-day transactions.


  • Cash is easy to use and transport, making it the ideal currency for small purchases.


  • Coins are often used for more significant transactions, as they are more valuable than paper currency.


However, coins can also be cumbersome, so many prefer using credit or debit cards for larger purchases.


Non-Physical Assets


Non-physical assets like stocks and bonds are also considered money forms.


These assets can be bought and sold like other goods or services and used to borrow money from lenders.


However, stocks and bonds tend to be more volatile than other forms of money.



DSST Money and Banking Trivia Question #101




2. Commercial Banks and Other Financial Intermediaries


DSST Money and Banking Exam Outline. Commercial Banks and Other Financial Intermediaries – 28%.
Commercial Banks and Other Financial Intermediaries – 28%

Commercial Banks


Commercial banks are one of the most important financial intermediaries in the United States.


They take deposits from individuals and companies and use them to make loans.


The loans they do help finance businesses and fuel the economy.


Commercial banks also provide other services such as checking and savings accounts, debit and credit cards, and investment products.


Regulation


Both state and federal governments heavily regulate the banking industry.


The goal of these regulations is to protect consumers and ensure the stability of the banking system.


Some essential regulations include deposit insurance, reserve, and capital requirements.


The structure of the banking industry has changed a lot in recent years.


The number of small banks has declined while the number of large banks has increased.


This consolidation has led to fewer consumer choices and less competition in the marketplace.


Financial Markets


Financial markets play a vital role in our economy.


They provide a place for businesses to raise capital and investors to buy and sell securities.


Financial intermediaries such as commercial banks play an essential role in these markets by providing liquidity and helping to match buyers and sellers.


Deposit insurance is a government-provided insurance program that protects consumers' deposits in case of bank failure.


3. Money and Macroeconomic Activity


DSST Money and Banking Exam Outline. Money and Macroeconomic Activity – 19%.
Money and Macroeconomic Activity – 19%

Classical Economics and Keynesian Economics


There are several different schools of thought regarding economics, but the most prominent are Classical and Keynesian economics.


Classical Economics: Based on the idea that the economy is self-regulating, market forces will eventually lead to full employment.


Keynesian Economics: Holds that government intervention is necessary to achieve full employment.


One of the key differences between these two schools of thought is their view on money and inflation.


  • Classical economists believe that money is neutral and does not affect economic activity.


  • Keynesian economists believe that changes in the money supply can lead to changes in aggregate demand, impacting economic activity.


This difference in views has important implications for monetary policy.


Monetarists


Monetarists adhere to the classical view of money and advocate for a hands-off approach to monetary policy. Meanwhile, Keynesians generally support a more active role for central banks in managing the economy.


Money plays a vital role in our economy and can significantly impact economic activity.


Inflation


Inflation is one of the most critical aspects of money and can significantly impact the economy.


When inflation is high, it can lead to higher prices for goods and services, which can hurt consumers and businesses.


High inflation can also erode the value of savings and make it difficult to borrow money.



DSST Money and Banking Trivia Question #660




4. Central Banking and the Federal Reserve System


DSST Money and Banking Exam Outline. Central Banking and the Federal Reserve System – 18%.
Central Banking and the Federal Reserve System – 18%

Federal Reserve System


The Federal Reserve System (often referred to as the Fed) is the central banking system of the United States.


It was created in 1913 in response to a series of financial panics. It is responsible for implementing monetary policy, supervising and regulating banks, and providing banking services to depository institutions.


The Fed comprises a Board of Governors, 12 regional Reserve Banks, and a variety of other committees and councils.


Board of Governors


The Board of Governors is responsible for setting monetary policy, while the regional Reserve Banks carry out that policy.


Currently, the Fed is focused on managing inflation while supporting maximum employment.


It uses various tools, including open market operations, reserve requirements, and discount rates.


By carrying out its responsibilities soundly and effectively, the Fed helps promote economic stability and prosperity.


5. Monetary Policy in the United States


DSST Money and Banking Exam Outline. Monetary Policy in the United States – 20%.
Monetary Policy in the United States – 20%

Monetary Policy


Monetary policy in the United States is the process by which the country's central bank, the Federal Reserve, influences the supply of money and credit to promote economic growth and stability.


The Federal Reserve uses various tools to conduct monetary policy, including setting the discount rate and reserve requirements, conducting open market operations, and altering the federal funds rate.


Interest Rates


Interest rates are one of the most critical factors in determining the money supply, affecting both borrowing and savings behavior.


Monetary policy can be distinguished from fiscal policy, which uses government spending and taxation to influence economic activity.


While monetary and fiscal policies can be used to achieve macroeconomic goals, they often affect different economic sectors.


Financial Crisis of 2008 - 2009


The financial crisis of 2008 - 2009 was a sharp reminder of the importance of sound monetary policy.


By taking swift and decisive action to stabilize financial markets, the Federal Reserve helped prevent the financial system's collapse.


While risks are always associated with economic policymaking, a well-functioning monetary policy regime is essential for maintaining long-term economic stability.



DSST Money and Banking Trivia Question #201




6. The International Monetary System


DSST Money and Banking Exam Outline. The International Monetary System – 10%.
The International Monetary System – 10%

International Monetary System


The international monetary system is the framework for international trade and capital flows.


It consists of a network of central, commercial, and investment banks that work together to facilitate currency exchange.


The system promotes stability and economic growth by exchanging currencies at fair rates.


However, the system has its challenges.


Debt Crisis


One major issue is that the debt crisis often arises when countries amass considerable debt.


This can lead to international financial instability and a decline in trade.


Another area for improvement is the exchange rate, which can fluctuate wildly, making it difficult for businesses to plan for future expenses.


Despite these challenges, the international monetary system plays a vital role in the global economy.


7. Conclusion: DSST Money and Banking


In conclusion, the DSST Money and Banking exam is a comprehensive test of your knowledge of the monetary system and its workings.


By thoroughly studying the topics covered in this guide, you will be well-prepared to ace the exam.


Try several practice questions for free and see if our program is the right fit for you.


Study smart and happy testing!


8. Student Resources


9. References


DSST Money and Banking Fact Sheet

DSST Money and Banking Fact Sheet
.pdf
Download PDF • 79KB


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