Question 1

The use of a credit card is most similar to

Accepted Answer

A) paying with a check. 
B) an ACH (automatic clearinghouse) transaction. 
C) purchasing a certificate of deposit. 
D) obtaining a short-term loan. 
A) paying with a check. 
B) an ACH (automatic clearinghouse) transaction. 
C) purchasing a certificate of deposit. 
D) obtaining a short-term loan.

Question 2

The Financial Crisis of 2007-2008 started in which sector of the economy?

Accepted Answer

A) foreign trade sector 
B) consumer durables sector 
C) dot-com and technology sector 
D) real estate and housing sector 
A) foreign trade sector 
B) consumer durables sector 
C) dot-com and technology sector 
D) real estate and housing sector

Question 3

The Federal Reserve System performs the following functions except

Accepted Answer

A) issuing the paper currency in the economy. 
B) providing banking services to the general public. 
C) providing financial services to the Federal government. 
D) lending money to banks and thrifts. 
A) issuing the paper currency in the economy. 
B) providing banking services to the general public. 
C) providing financial services to the Federal government. 
D) lending money to banks and thrifts.

Question 4

Which of the following is the basic economic policy function of the Federal Reserve Banks?

Accepted Answer

A) holding the deposits or reserves of commercial banks 
B) acting as fiscal agents for the federal government 
C) controlling the supply of money 
D) collecting or clearing checks among commercial banks 
A) holding the deposits or reserves of commercial banks 
B) acting as fiscal agents for the federal government 
C) controlling the supply of money 
D) collecting or clearing checks among commercial banks

Question 5

If the price index rises from 100 to 120, the purchasing power value of the dollar

Accepted Answer

A) may either rise or fall. 
B) will rise by one-sixth. 
C) will fall by one-sixth. 
D) will rise by 20 percent. 
A) may either rise or fall. 
B) will rise by one-sixth. 
C) will fall by one-sixth. 
D) will rise by 20 percent.

Question 6

Currency and checkable deposits are

Accepted Answer

A) assets of the Federal Reserve Banks or of financial institutions. 
B) redeemable for gold and silver from the Federal Reserve System. 
C) of intrinsic value, which determines the relative worth of money. 
D) the major components of money supply M1. 
A) assets of the Federal Reserve Banks or of financial institutions. 
B) redeemable for gold and silver from the Federal Reserve System. 
C) of intrinsic value, which determines the relative worth of money. 
D) the major components of money supply M1.

Question 7

The purchasing power of the dollar

Accepted Answer

A) has been increasing in recent years because of economic growth. 
B) varies directly with the cost-of-living index. 
C) is inversely related to the level of aggregate demand. 
D) is the reciprocal of the price level. 
A) has been increasing in recent years because of economic growth. 
B) varies directly with the cost-of-living index. 
C) is inversely related to the level of aggregate demand. 
D) is the reciprocal of the price level.

Question 8

Firms whose central business is to offer security advice and buy and sell individual stocks and bonds for clients are known as

Accepted Answer

A) thrifts. 
B) pension fund companies. 
C) securities firms. 
D) insurance companies. 
A) thrifts. 
B) pension fund companies. 
C) securities firms. 
D) insurance companies.

Question 9

The main function of the Federal Reserve System is to

Accepted Answer

A) serve as the fiscal agent for the federal government. 
B) set reserve requirements of banks. 
C) clear checks from member banks. 
D) control the money supply. 
A) serve as the fiscal agent for the federal government. 
B) set reserve requirements of banks. 
C) clear checks from member banks. 
D) control the money supply.

Question 10

The so-called too-big-to-fail policy has two conflicting sides: on one hand there's the moral hazard problem that it creates, but on the other hand, the Fed must

Accepted Answer

A) protect the stability of the banking system. 
B) promote competition among banks. 
C) ensure the employment of people in financial services. 
D) control the money supply. 
A) protect the stability of the banking system. 
B) promote competition among banks. 
C) ensure the employment of people in financial services. 
D) control the money supply.

Question 11

Michelle transfers $4,000 from her savings account to her checking account.What effect is this change likely to have on M1 and M2?

Accepted Answer

A) M1 decreases and M2 increases 
B) M1 increases and M2 decreases 
C) M1 increases and M2 stays the same 
D) M2 increases and M1 stays the same 
A) M1 decreases and M2 increases 
B) M1 increases and M2 decreases 
C) M1 increases and M2 stays the same 
D) M2 increases and M1 stays the same

Question 12

The Federal Reserve System is independent of Congress and the president and does not have to follow orders from either Congress or the president.

Accepted Answer

A) True 
 B)False

Question 13

Currency and coins held by banks are part of the M1 definition of money supply.

Accepted Answer

A) True 
 B)False

Question 14

The M2 money supply includes

Accepted Answer

A) stock certificates. 
B) currency in bank vaults. 
C) the cash value of life insurance policies. 
D) individual shares in money market mutual funds. 
A) stock certificates. 
B) currency in bank vaults. 
C) the cash value of life insurance policies. 
D) individual shares in money market mutual funds.

Question 15

Suppose that the federal government suddenly declared that wheat was to be used as money.What is a possible outcome of that decision?

Accepted Answer

A) The value of the "wheat dollar" would be unstable depending on crop yields from year to year. 
B) Farmers would replace corn and soy crops with wheat. 
C) Wheat would function as money so long as people accept it in exchange for goods and services. 
D) All of these are possible outcomes. 
A) The value of the "wheat dollar" would be unstable depending on crop yields from year to year. 
B) Farmers would replace corn and soy crops with wheat. 
C) Wheat would function as money so long as people accept it in exchange for goods and services. 
D) All of these are possible outcomes.

Question 16

Insurance companies are a major category of financial institutions.

Accepted Answer

A) True 
 B)False

Question 17

An inflation rate of 8 percent would erode the purchasing power of the dollar by

Accepted Answer

A) 8.0 percent. 
B) 7.4 percent. 
C) 4.4 percent. 
D) 12.5 percent. 
A) 8.0 percent. 
B) 7.4 percent. 
C) 4.4 percent. 
D) 12.5 percent.

Question 18

Approximately how many commercial banks are now (2016) operating in the United States?

Accepted Answer

A) about 7,300 
B) about 6,000 
C) about 8,500 
D) about 6,800 
A) about 7,300 
B) about 6,000 
C) about 8,500 
D) about 6,800

Question 19

A checking account entry is money because it

Accepted Answer

A) is ensured by the Federal Deposit Insurance Corporation. 
B) has been declared as such by the federal government. 
C) performs the functions of money. 
D) can be sold for currency. 
A) is ensured by the Federal Deposit Insurance Corporation. 
B) has been declared as such by the federal government. 
C) performs the functions of money. 
D) can be sold for currency.

Question 20

A few years prior to the Financial Crisis of 2007-2008, many people were getting approved for mortgage loans even without proper documentation or credit checks.

Accepted Answer

A) True 
 B)False

Exam 34: Money, Banking, and Financial Institutions

The use of a credit card is most similar to

The Financial Crisis of 2007-2008 started in which sector of the economy?

The Federal Reserve System performs the following functions except

Which of the following is the basic economic policy function of the Federal Reserve Banks?

If the price index rises from 100 to 120, the purchasing power value of the dollar

Currency and checkable deposits are

The purchasing power of the dollar

Firms whose central business is to offer security advice and buy and sell individual stocks and bonds for clients are known as

The main function of the Federal Reserve System is to

The so-called too-big-to-fail policy has two conflicting sides: on one hand there's the moral hazard problem that it creates, but on the other hand, the Fed must

Michelle transfers $4,000 from her savings account to her checking account.What effect is this change likely to have on M1 and M2?

The Federal Reserve System is independent of Congress and the president and does not have to follow orders from either Congress or the president.

Currency and coins held by banks are part of the M1 definition of money supply.

The M2 money supply includes

Suppose that the federal government suddenly declared that wheat was to be used as money.What is a possible outcome of that decision?

Insurance companies are a major category of financial institutions.

An inflation rate of 8 percent would erode the purchasing power of the dollar by

Approximately how many commercial banks are now (2016) operating in the United States?

A checking account entry is money because it

A few years prior to the Financial Crisis of 2007-2008, many people were getting approved for mortgage loans even without proper documentation or credit checks.

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

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