Question 1

The Fed traditionally can grant loans to commercial banks but not to investments banks and securities firms.

Accepted Answer

A) True 
 B)False  True

Question 2

An important routine function of the Federal Reserve Bank is to

Accepted Answer

A) supervise the liquidation of the assets of bankrupt state banks. 
B) help large commercial banks develop correspondent relationships with smaller commercial banks. 
C) advise commercial banks as to the most profitable ways of reinvesting profits. 
D) provide facilities by which commercial banks and thrift institutions may collect checks. 
A) supervise the liquidation of the assets of bankrupt state banks. 
B) help large commercial banks develop correspondent relationships with smaller commercial banks. 
C) advise commercial banks as to the most profitable ways of reinvesting profits. 
D) provide facilities by which commercial banks and thrift institutions may collect checks. D

Question 3

The M1 money supply is composed of

Accepted Answer

A) all coins and paper money held by the general public and the banks. 
B) bank deposits of households and business firms. 
C) bank deposits and mutual funds. 
D) checkable deposits and currency in circulation. 
A) all coins and paper money held by the general public and the banks. 
B) bank deposits of households and business firms. 
C) bank deposits and mutual funds. 
D) checkable deposits and currency in circulation. D

Question 4

When there is inflation in the economy, it implies that the

Accepted Answer

A) price index is rising and the purchasing power of money is also rising. 
B) price index is falling and the purchasing power of money is also falling. 
C) price index is falling and the purchasing power of money is rising. 
D) price index is rising and the purchasing power of money is falling. 
A) price index is rising and the purchasing power of money is also rising. 
B) price index is falling and the purchasing power of money is also falling. 
C) price index is falling and the purchasing power of money is rising. 
D) price index is rising and the purchasing power of money is falling.

Question 5

The Federal Reserve System is the institution that issues the U.S.paper currency or dollar bills.

Accepted Answer

A) True 
 B)False

Question 6

When economists say that money serves as a medium of exchange, they mean that it is

Accepted Answer

A) a way to keep wealth in a readily spendable form for future use. 
B) a means of payment. 
C) a monetary unit for measuring and comparing the relative values of goods. 
D) declared as legal tender by the government. 
A) a way to keep wealth in a readily spendable form for future use. 
B) a means of payment. 
C) a monetary unit for measuring and comparing the relative values of goods. 
D) declared as legal tender by the government.

Question 7

The Federal Open Market Committee (FOMC) regulates markets and enforces antitrust laws to keep markets open and competitive.

Accepted Answer

A) True 
 B)False

Question 8

Assuming no other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, the

Accepted Answer

A) M1 money supply will decline. 
B) M1 money supply will not change. 
C) M2 money supply will decline. 
D) M2 money supply will increase. 
A) M1 money supply will decline. 
B) M1 money supply will not change. 
C) M2 money supply will decline. 
D) M2 money supply will increase.

Question 9

The programs enacted to bail out the financial system from crisis in 2007 and 2008 helped alleviate the moral hazard problem in the financial industry.

Accepted Answer

A) True 
 B)False

Question 10

When a bank's loans are written off, then the bank's

Accepted Answer

A) ability to make more new loans increases. 
B) ability to make new loans is restricted. 
C) assets will grow, while its liabilities stay the same. 
D) assets stay the same, while its liabilities grow. 
A) ability to make more new loans increases. 
B) ability to make new loans is restricted. 
C) assets will grow, while its liabilities stay the same. 
D) assets stay the same, while its liabilities grow.

Question 11

Time deposits of $100,000 or more are

Accepted Answer

A) a component of M1. 
B) a component of M2 but not of M1. 
C) a component of M1 but not of M2. 
D) not a component of M1 or M2. 
A) a component of M1. 
B) a component of M2 but not of M1. 
C) a component of M1 but not of M2. 
D) not a component of M1 or M2.

Question 12

Which of the following bank-related policies of the Fed fosters huge moral hazard problems?

Accepted Answer

A) printing of paper currency for banks to distribute 
B) too-big-to-fail policy in the Fedâ€™s lender-of-last-resort activities 
C) check-clearing and deposit-transfer services provided to banks 
D) providing banking services to foreign governments 
A) printing of paper currency for banks to distribute 
B) too-big-to-fail policy in the Fedâ€™s lender-of-last-resort activities 
C) check-clearing and deposit-transfer services provided to banks 
D) providing banking services to foreign governments

Question 13

The paper money used in the United States is

Accepted Answer

A) National Bank notes. 
B) Treasury notes. 
C) United States notes. 
D) Federal Reserve notes. 
A) National Bank notes. 
B) Treasury notes. 
C) United States notes. 
D) Federal Reserve notes.

Question 14

The M2 money supply may be larger or smaller than the M1 money supply, depending on the size of small-denominated time deposit balances and money market mutual fund balances held by individuals.

Accepted Answer

A) True 
 B)False

Question 15

The destabilizing effects of defaulting mortgages quickly spread throughout the financial system because those mortgages were involved in widespread

Accepted Answer

A) diversification. 
B) securitization. 
C) multiplier effects. 
D) real-balance effects. 
A) diversification. 
B) securitization. 
C) multiplier effects. 
D) real-balance effects.

Question 16

Which of the following is not a provision of the Wall Street Reform & Consumer Protection Act of 2010?

Accepted Answer

A) It gives broader authority to the Fed to regulate all large financial institutions. 
B) It establishes a process for liquidating in an orderly way the assets of large, failing financial institutions. 
C) It creates a Financial Stability Oversight Council to look out for systemic risk in the financial system. 
D) It consolidates the operations of Wall Street, commercial banks, and other financial institutions. 
A) It gives broader authority to the Fed to regulate all large financial institutions. 
B) It establishes a process for liquidating in an orderly way the assets of large, failing financial institutions. 
C) It creates a Financial Stability Oversight Council to look out for systemic risk in the financial system. 
D) It consolidates the operations of Wall Street, commercial banks, and other financial institutions.

Question 17

As of February 2016, more than half of the money supply (M1) was in the form of

Accepted Answer

A) currency. 
B) checkable deposits. 
C) gold coins and bars. 
D) savings deposits. 
A) currency. 
B) checkable deposits. 
C) gold coins and bars. 
D) savings deposits.

Question 18

How many members can serve on the Board of Governors of the Federal Reserve System?

Accepted Answer

A) 7 
B) 9 
C) 12 
D) 14 
A) 7 
B) 9 
C) 12 
D) 14

Question 19

The consolidation in the financial industry into fewer and larger firms

Accepted Answer

A) progressed further in the Financial Crisis of 2007-2008. 
B) halted in the Financial Crisis of 2007-2008. 
C) slowed down in the Financial Crisis of 2007-2008. 
D) was reversed in the Financial Crisis of 2007-2008. 
A) progressed further in the Financial Crisis of 2007-2008. 
B) halted in the Financial Crisis of 2007-2008. 
C) slowed down in the Financial Crisis of 2007-2008. 
D) was reversed in the Financial Crisis of 2007-2008.

Question 20

The reason for the Fed being set up as an independent agency of government is to

Accepted Answer

A) protect it from political pressure. 
B) allow it to earn profits like private firms. 
C) make it be managed and controlled by member banks. 
D) let it be able to compete with other financial institutions. 
A) protect it from political pressure. 
B) allow it to earn profits like private firms. 
C) make it be managed and controlled by member banks. 
D) let it be able to compete with other financial institutions.

Exam 34: Money, Banking, and Financial Institutions

The Fed traditionally can grant loans to commercial banks but not to investments banks and securities firms.

An important routine function of the Federal Reserve Bank is to

The M1 money supply is composed of

When there is inflation in the economy, it implies that the

The Federal Reserve System is the institution that issues the U.S.paper currency or dollar bills.

When economists say that money serves as a medium of exchange, they mean that it is

The Federal Open Market Committee (FOMC) regulates markets and enforces antitrust laws to keep markets open and competitive.

Assuming no other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, the

The programs enacted to bail out the financial system from crisis in 2007 and 2008 helped alleviate the moral hazard problem in the financial industry.

When a bank's loans are written off, then the bank's

Time deposits of $100,000 or more are

Which of the following bank-related policies of the Fed fosters huge moral hazard problems?

The paper money used in the United States is

The M2 money supply may be larger or smaller than the M1 money supply, depending on the size of small-denominated time deposit balances and money market mutual fund balances held by individuals.

The destabilizing effects of defaulting mortgages quickly spread throughout the financial system because those mortgages were involved in widespread

Which of the following is not a provision of the Wall Street Reform & Consumer Protection Act of 2010?

As of February 2016, more than half of the money supply (M1) was in the form of

How many members can serve on the Board of Governors of the Federal Reserve System?

The consolidation in the financial industry into fewer and larger firms

The reason for the Fed being set up as an independent agency of government is to

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters