Question 1

Which one of the following is true about the U.S. Federal Reserve System?

Accepted Answer

A)  There are 12 regional Federal Reserve Banks. 
B)  The head of the U.S. Treasury also chairs the Federal Reserve Board. 
C)  There are 14 members of the Federal Reserve Board. 
D)  The Open Market Committee is smaller in size than the Federal Reserve Board. 
A)  There are 12 regional Federal Reserve Banks. 
B)  The head of the U.S. Treasury also chairs the Federal Reserve Board. 
C)  There are 14 members of the Federal Reserve Board. 
D)  The Open Market Committee is smaller in size than the Federal Reserve Board.

Question 2

(Last Word) The Assistant U.S. Attorney General in charge of prosecuting ﬁnancial crimes did which of the following in response to HSBC bank's years of money laundering and helping ﬁrms and individuals cheat on their taxes?

Accepted Answer

A)  Imposed ﬁnes on HSBC and prosecuted key executives so as to diminish moral hazard in the ﬁnancial services industry. 
B)  Filed an antitrust lawsuit so as to break up HSBC without disrupting the ﬁnancial system. 
C)  Imposed only modest ﬁnes on HSBC so as not to destabilize the bank and the ﬁnancial system. 
D)  Imposed sanctions based on the provisions of the 2010 Wall Street Reform and Consumer Protection Act. 
A)  Imposed ﬁnes on HSBC and prosecuted key executives so as to diminish moral hazard in the ﬁnancial services industry. 
B)  Filed an antitrust lawsuit so as to break up HSBC without disrupting the ﬁnancial system. 
C)  Imposed only modest ﬁnes on HSBC so as not to destabilize the bank and the ﬁnancial system. 
D)  Imposed sanctions based on the provisions of the 2010 Wall Street Reform and Consumer Protection Act.

Question 3

The Federal Reserve System was established by the Federal Reserve Act of

Accepted Answer

A)  1913. 
B)  1933. 
C)  1945. 
D)  1955. 
A)  1913. 
B)  1933. 
C)  1945. 
D)  1955.

Question 4

Checkable deposits are money because they are

Accepted Answer

A)  legal tender. 
B)  ﬁat money. 
C)  acceptable as payment. 
D)  token money. 
A)  legal tender. 
B)  ﬁat money. 
C)  acceptable as payment. 
D)  token money.

Question 5

Theoretically, during a ﬁnancial crisis, the Fed is supposed to act as a lender of last resort to

Accepted Answer

A)  all insolvent banks. 
B)  insolvent banks that are illiquid. 
C)  solvent banks that are illiquid. 
D)  insolvent banks that are highly liquid. 
A)  all insolvent banks. 
B)  insolvent banks that are illiquid. 
C)  solvent banks that are illiquid. 
D)  insolvent banks that are highly liquid.

Question 6

$$\begin{array} { | c | c | c | } 
\hline \text { Year } & \text { Price Level } & \text { Value of Dollar } \
\hline 1 & 1.00 & \$ 1.00 \
\hline 2 & 1.25 & \
\hline 3 & 0.80 & \
\hline 4 & 0.50 & \
\hline
\end{array}$$ Refer to the given table. The value of the dollar in year 3 is

Accepted Answer

A)  $1.20. 
B)  $1.25. 
C)  $0.80. 
D)  $1.10. 
A)  $1.20. 
B)  $1.25. 
C)  $0.80. 
D)  $1.10.

Question 7

In practice, during a ﬁnancial crisis, the Fed and other central banks are under pressure to adopt an "extend and pretend" policy, in order to contain the wave bankruptcies. "Extend and pretend" refers to extending loans

Accepted Answer

A)  only to ﬁnancial ﬁrms that are solvent, as long as the ﬁrms could pledge enough assets. 
B)  to ﬁnancial ﬁrms, both solvent and insolvent, as long as the ﬁrms could pledge enough assets. 
C)  to ﬁnancial ﬁrms in need of liquidity, regardless of whether the ﬁrms pledge enough assets or not. 
D)  to ﬁrms and then pretending that the loans are being repaid when they become due. 
A)  only to ﬁnancial ﬁrms that are solvent, as long as the ﬁrms could pledge enough assets. 
B)  to ﬁnancial ﬁrms, both solvent and insolvent, as long as the ﬁrms could pledge enough assets. 
C)  to ﬁnancial ﬁrms in need of liquidity, regardless of whether the ﬁrms pledge enough assets or not. 
D)  to ﬁrms and then pretending that the loans are being repaid when they become due.

Question 8

An asset's liquidity refers to its ability to be

Accepted Answer

A)  bought and stored. 
B)  increasing in value over time. 
C)  used and enjoyed. 
D)  a means of payment. 
A)  bought and stored. 
B)  increasing in value over time. 
C)  used and enjoyed. 
D)  a means of payment.

Question 9

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 soybean 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 soybean 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 10

State the formula for the relationship between the purchasing power of the U.S. dollar and the price level.

Accepted Answer

$V = 1/P, where V is the value of the do

Question 11

"Near monies" are included in

Accepted Answer

A)  both M1 and M2. 
B)  M2 only. 
C)  M1 only. 
D)  neither M1 nor M2. 
A)  both M1 and M2. 
B)  M2 only. 
C)  M1 only. 
D)  neither M1 nor M2.

Question 12

Why are today's coins not made of precious metals?

Accepted Answer

If coins were made of precious metals, t

Question 13

In the United States, the money supply (M1) includes

Accepted Answer

A)  coins, paper currency, and checkable deposits. 
B)  currency, checkable deposits, and Series E bonds. 
C)  coins, paper currency, checkable deposits, and credit balances with brokers. 
D)  paper currency, coins, gold certiﬁcates, and time deposits. 
A)  coins, paper currency, and checkable deposits. 
B)  currency, checkable deposits, and Series E bonds. 
C)  coins, paper currency, checkable deposits, and credit balances with brokers. 
D)  paper currency, coins, gold certiﬁcates, and time deposits.

Question 14

The major wave of defaults on home mortgages in 2007 destabilized

Accepted Answer

A)  only the banks that directly made the mortgage loans. 
B)  only the mortgage brokers, not the commercial banks. 
C)  many banks, including those that made the loans indirectly. 
D)  mostly large banks, but not too many small ones. 
A)  only the banks that directly made the mortgage loans. 
B)  only the mortgage brokers, not the commercial banks. 
C)  many banks, including those that made the loans indirectly. 
D)  mostly large banks, but not too many small ones.

Question 15

What is the main purpose of the Federal Open Market Committee (FOMC)?

Accepted Answer

The FOMC meets regularly to direct the p

Question 16

If you are estimating your total expenses for school next semester, you are using money primarily as

Accepted Answer

A)  a medium of exchange. 
B)  a store of value. 
C)  a unit of account. 
D)  an economic investment. 
A)  a medium of exchange. 
B)  a store of value. 
C)  a unit of account. 
D)  an economic investment.

Question 17

The Federal Open Market Committee (FOMC) of the Federal Reserve System is primarily for

Accepted Answer

A)  maintaining cash reserves that can be used to settle international transactions. 
B)  supervising banks to make sure that markets are open to all and remain competitive. 
C)  issuing currency and acting as the ﬁscal agent for the Federal government. 
D)  setting the Fed's monetary policy and directing the purchase and sale of government securities. 
A)  maintaining cash reserves that can be used to settle international transactions. 
B)  supervising banks to make sure that markets are open to all and remain competitive. 
C)  issuing currency and acting as the ﬁscal agent for the Federal government. 
D)  setting the Fed's monetary policy and directing the purchase and sale of government securities.

Question 18

(Consider This) Which of the following is not true about the use of a credit card?

Accepted Answer

A)  It is a means of deferring payment for a short period of time. 
B)  It allows people to "economize" on the use of money. 
C)  Credit card balances are part of M2 but not part of M1. 
D)  A credit card transaction is not the same as a debit card transaction. 
A)  It is a means of deferring payment for a short period of time. 
B)  It allows people to "economize" on the use of money. 
C)  Credit card balances are part of M2 but not part of M1. 
D)  A credit card transaction is not the same as a debit card transaction.

Question 19

Describe the three major units of the Federal Reserve System and their functions.

Accepted Answer

The Board of Governors consists of seven

Question 20

The bailout money that went to giant ﬁnancial institutions like Citibank and Goldman Sachs, along with General Motors and Chrysler, during the ﬁnancial crisis and the Great Recession, came from the

Accepted Answer

A)  American Recovery and Reinvestment Act. 
B)  Troubled Assets Relief Program. 
C)  Primary Dealer Credit Facility. 
D)  Term Securities Lending Facility. 
A)  American Recovery and Reinvestment Act. 
B)  Troubled Assets Relief Program. 
C)  Primary Dealer Credit Facility. 
D)  Term Securities Lending Facility.

Exam 14: Money, Banking, and Financial Institutions

Which one of the following is true about the U.S. Federal Reserve System?

(Last Word) The Assistant U.S. Attorney General in charge of prosecuting ﬁnancial crimes did which of the following in response to HSBC bank's years of money laundering and helping ﬁrms and individuals cheat on their taxes?

The Federal Reserve System was established by the Federal Reserve Act of

Checkable deposits are money because they are

Theoretically, during a ﬁnancial crisis, the Fed is supposed to act as a lender of last resort to

Year Price Level Value of Dollar 1 1.00 \ 1.00 2 1.25 3 0.80 4 0.50 Refer to the given table. The value of the dollar in year 3 is

In practice, during a ﬁnancial crisis, the Fed and other central banks are under pressure to adopt an "extend and pretend" policy, in order to contain the wave bankruptcies. "Extend and pretend" refers to extending loans

An asset's liquidity refers to its ability to be

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

State the formula for the relationship between the purchasing power of the U.S. dollar and the price level.

"Near monies" are included in

Why are today's coins not made of precious metals?

In the United States, the money supply (M1) includes

The major wave of defaults on home mortgages in 2007 destabilized

What is the main purpose of the Federal Open Market Committee (FOMC)?

If you are estimating your total expenses for school next semester, you are using money primarily as

The Federal Open Market Committee (FOMC) of the Federal Reserve System is primarily for

(Consider This) Which of the following is not true about the use of a credit card?

Describe the three major units of the Federal Reserve System and their functions.

The bailout money that went to giant ﬁnancial institutions like Citibank and Goldman Sachs, along with General Motors and Chrysler, during the ﬁnancial crisis and the Great Recession, came from the

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

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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