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DSST Money and Banking Study Guide

Updated: Feb 14

Mastering the DSST Money and Banking Exam

Our DSST Money and Banking study guide serves as an invaluable resource to acquaint you with the intricacies of this subject.

Comprehensive and meticulously crafted, this guide furnishes detailed insights into all the topics featured in the examination, ensuring you are thoroughly prepared to tackle each concept confidently.


Table of Contents


1. The Role and Kinds of Money

Woman shopping in the mall.
The Role and Kinds of Money – 5%


Money encompasses various forms and functions crucial to our economy.

At its core, money serves as an asset facilitating transactions for goods and services.

This can manifest in physical assets like cash and coins and non-physical assets like stocks and bonds.


Physical Assets

Cash and coins represent the most tangible form of money, facilitating everyday transactions due to their ease of use and portability.

While cash is convenient for small purchases, coins are often utilized for more significant transactions.

However, with the rise of digital payment methods, like credit or debit cards, cash and coins may be less frequently employed.


Non-Physical Assets

Contrastingly, non-physical assets like stocks and bonds also hold monetary value and function as mediums of exchange.

Investors buy and sell these assets, utilizing them for investment and borrowing purposes.

Despite their versatility, non-physical assets can be more volatile than their physical counterparts, subject to fluctuations in the market.


DSST Money and Banking Trivia Question # 101


2. Commercial Banks and Other Financial Intermediaries

Banker throwing money in the air.
Commercial Banks and Other Financial Intermediaries – 28%

Commercial Banks

Commercial banks are pivotal financial intermediaries in the U.S., acting as vital conduits between depositors and borrowers.

They accept deposits from individuals and businesses, utilizing these funds to extend loans to various entities, thereby stimulating economic activity.

Additionally, commercial banks offer many financial services, including checking and savings accounts, debit and credit cards, and investment products.



Both state and federal governments tightly regulate the banking sector to safeguard consumers' interests and ensure the financial system's stability.

Key regulations encompass deposit insurance, reserve requirements, and capital adequacy standards.

These regulatory measures aim to mitigate risks and maintain confidence in the banking industry.


Industry Evolution

The banking landscape has undergone significant transformation in recent years, marked by a decline in small banks and a surge in large banking institutions.

This consolidation has reduced consumer options and diminished competition within the market, raising concerns about monopolistic tendencies.


Financial Markets

Financial markets serve as crucial platforms for businesses to raise capital and for investors to trade securities.

Commercial banks play a pivotal role in these markets by providing liquidity and facilitating transactions between buyers and sellers.

Their involvement enhances market efficiency and fosters capital formation, driving economic growth.


Deposit Insurance

Deposit insurance, a government-backed program, safeguards consumers' deposits in case of bank insolvency or failure.

This insurance scheme provides peace of mind to depositors, assuring them of the safety and security of their funds, thereby bolstering trust in the banking system.


3. Money and Macroeconomic Activity

Child counting money.
Money and Macroeconomic Activity – 19%

Classical Economics and Keynesian Economics

In the realm of economic thought, Classical Economics, and Keynesian Economics stand as two prominent schools of theory, each offering distinct perspectives on how economies function and the role of government intervention.


Classical Economics

Rooted in the belief in the inherent self-regulating nature of markets, Classical Economics posits that market forces, left to their own devices, will naturally gravitate towards full employment and equilibrium.

This school of thought emphasizes minimal government intervention in economic affairs, advocating for laissez-faire policies and free-market principles.


Keynesian Economics

In contrast, Keynesian Economics asserts that government intervention is indispensable for steering economies toward full employment and stability, particularly during economic downturns.

Championed by British economist John Maynard Keynes, this approach emphasizes the role of aggregate demand in shaping economic outcomes and advocates for active fiscal and monetary policies to address fluctuations in economic activity.


Money and Inflation

One pivotal point of departure between Classical and Keynesian economists lies in their perspectives on money and its impact on economic activity.

Classical economists maintain that money is neutral, asserting that changes in the money supply do not significantly influence actual economic variables such as output and employment.

Conversely, Keynesian economists contend that alterations in the money supply can exert substantial effects on aggregate demand, thereby influencing overall economic activity.



Monetarists align closely with Classical Economics in their view of money, advocating for a hands-off approach to monetary policy and emphasizing the importance of maintaining a stable money supply.

In contrast, Keynesians advocate for more proactive measures by central banks to manage economic conditions and stabilize output and employment levels.



Inflation, the sustained increase in the general price level over time, is a crucial consideration in monetary policy and economic management.

High inflation rates can erode purchasing power, disrupt economic planning, and distort resource allocation, posing challenges for consumers and businesses.

Thus, policymakers must carefully navigate inflationary pressures to ensure economic stability and prosperity.


DSST Money and Banking Trivia Question # 660


4. Central Banking and the Federal Reserve System

Woman asking for money.
Central Banking and the Federal Reserve System – 18%

Federal Reserve System

Established in 1913 in response to financial panics, the Federal Reserve System, commonly known as the Fed, serves as the central banking authority in the United States.

Tasked with crucial functions such as implementing monetary policy, regulating banks, and providing banking services, the Fed plays a pivotal role in shaping the nation's economic landscape.



Comprising a Board of Governors, 12 regional Reserve Banks, and several advisory committees, the Federal Reserve System operates through a decentralized structure.

The Board of Governors, appointed by the President and confirmed by the Senate, is responsible for formulating monetary policy.

At the same time, the regional Reserve Banks execute these policies within their respective jurisdictions.


Monetary Policy

A core function of the Federal Reserve is the formulation and implementation of monetary policy.

With the dual mandate of maintaining price stability and promoting maximum employment, the Fed employs various tools to achieve these objectives.

These tools include open market operations, in which the Fed buys or sells government securities to influence the money supply; reserve requirements, which regulate the amount of reserves banks must hold; and discount rates, which influence borrowing costs for banks.



The overarching objectives of the Federal Reserve System encompass fostering economic stability and promoting sustainable growth.

The Fed seeks to maintain a conducive economic prosperity and financial well-being environment by managing inflationary pressures and supporting job creation.

As the steward of the nation's monetary system, the Federal Reserve System plays a crucial role in safeguarding the stability and resilience of the U.S. economy.

The Fed strives to uphold its mandate of fostering economic growth and stability through prudent policies and effective oversight, thereby contributing to the nation's prosperity.


5. Monetary Policy in the United States

Customer paying with a credit card.
Monetary Policy in the United States – 20%

Monetary Policy

Monetary policy refers to the strategies and actions undertaken by the central bank, such as the Federal Reserve in the United States, to regulate the country's money supply and credit availability.

The primary objective of monetary policy is to foster economic growth and stability while maintaining price stability.


Tools of Monetary Policy

The Federal Reserve employs various tools to execute monetary policy effectively.

These tools include setting the discount rate, which influences the interest rates at which banks borrow from the Fed; establishing reserve requirements, which dictate the minimum reserves banks must hold; conducting open market operations, involving the buying and selling of government securities to adjust the money supply; and adjusting the federal funds rate, which influences short-term borrowing rates among banks.


Interest Rates

Interest rates play a pivotal role in monetary policy, serving as a critical determinant of borrowing and savings decisions by businesses and consumers.

By adjusting interest rates, the central bank can influence economic activity, investment levels, and inflationary pressures within the economy.


Distinction From Fiscal Policy

Monetary policy differs from fiscal policy, which involves government spending and taxation measures to manage economic conditions.

While both policies aim to achieve macroeconomic objectives, such as price stability and full employment, they operate through distinct mechanisms and impact different sectors of the economy.


Financial Crisis of 2008-2009

The financial crisis of 2008-2009 underscored the critical importance of effective monetary policy in safeguarding economic stability.

In response to the crisis, the Federal Reserve implemented unprecedented measures to stabilize financial markets and restore confidence.

By swiftly addressing liquidity issues and supporting credit markets, the Fed played a pivotal role in mitigating the severity of the crisis and facilitating economic recovery.

Monetary policy is a cornerstone of economic management, influencing borrowing costs, investment decisions, and overall economic activity.

Central banks seek to maintain price stability, promote sustainable growth, and mitigate financial risks through the judicious use of monetary tools.

As demonstrated during times of crisis, sound monetary policy is essential for preserving the stability and resilience of the financial system and fostering long-term prosperity.


DSST Money and Banking Trivia Question # 201


6. The International Monetary System

Money printer.
The International Monetary System – 10%

International Monetary System

The international monetary system is the backbone of global trade and financial transactions, providing the framework for currency exchange and capital movements among nations.

It encompasses a network of central banks, commercial banks, and investment institutions collaborating to facilitate cross-border economic activities.


Promoting Stability and Growth

At its core, the international monetary system aims to foster stability and economic growth by enabling the seamless exchange of currencies at fair and transparent rates.

The system facilitates international trade and investment, increasing productivity, efficiency, and prosperity across countries.


Challenges and Issues

However, the international monetary system also faces various challenges and issues that can impact its effectiveness and stability.

One significant challenge is the occurrence of debt crises, wherein countries accumulate unsustainable debt levels, leading to financial instability and disruptions in global markets.

These crises can undermine investor confidence, trigger capital flight, and hinder economic development.


Exchange Rate Volatility

Moreover, exchange rate volatility poses another challenge within the international monetary system.

Fluctuations in exchange rates can occur due to various factors, including economic uncertainties, geopolitical tensions, and speculative activities.

Such volatility can complicate business planning and decision-making for firms engaged in international trade, as it introduces uncertainty regarding future expenses and revenues.


Role in the Global Economy

Despite these challenges, the international monetary system remains indispensable to the functioning of the global economy.

It facilitates cross-border transactions, supports international investment flows, and promotes economic integration among nations.

Through ongoing collaboration and coordination among stakeholders, efforts can be made to address the system's shortcomings and enhance its resilience, thereby ensuring its continued role in facilitating global economic growth and development.


7. Conclusion

Piggy bank and coins.

DSST Money and Banking Exam

The DSST Money and Banking exam comprehensively evaluates your understanding of the monetary system and its intricacies.

It covers many topics essential for anyone seeking proficiency in this field.

Practice questions are available to help reinforce your learning and gauge your readiness for the test.

We invite you to explore our program further and discover how it can support your exam preparation journey.

With strategic study habits and a thorough grasp of the subject matter, success on the DSST Money and Banking exam is within reach.

Study wisely, stay focused, and approach the exam with confidence.

Best of luck with your testing endeavors!


8. Student Resources


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