Question 1

(Consider This)Which of the following is not part of the M2 money supply?

Accepted Answer

A)  Currency in circulation. 
B)  Credit card balances. 
C)  Small-denominated time deposits of less than $100,000. 
D)  Checkable deposits. 
A)  Currency in circulation. 
B)  Credit card balances. 
C)  Small-denominated time deposits of less than $100,000. 
D)  Checkable deposits.

Question 2

Which of the following programs was not designed and implemented by the Federal Reserve?

Accepted Answer

A)  Troubled Asset Relief Program. 
B)  Term Securities Lending Facility. 
C)  Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility. 
D)  Primary Dealer Credit Facility. 
A)  Troubled Asset Relief Program. 
B)  Term Securities Lending Facility. 
C)  Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility. 
D)  Primary Dealer Credit Facility.

Question 3

The Glass-Steagall Act of 1933:

Accepted Answer

A)  encouraged the creation of large,interconnected financial services firms. 
B)  was a primary cause of the 2007-2008 financial crisis and subsequent recession. 
C)  created banks "too big to fail" and "too big to jail." 
D)  separated high-risk and low-risk financial activities across different firms. 
A)  encouraged the creation of large,interconnected financial services firms. 
B)  was a primary cause of the 2007-2008 financial crisis and subsequent recession. 
C)  created banks "too big to fail" and "too big to jail." 
D)  separated high-risk and low-risk financial activities across different firms.

Question 4

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 5

Checkable deposits are classified as money because:

Accepted Answer

A)  they can be readily used in purchasing goods and paying debts. 
B)  banks hold currency equal to the value of their checkable deposits. 
C)  they are ultimately the obligations of the Treasury. 
D)  they earn interest income for the depositor. 
A)  they can be readily used in purchasing goods and paying debts. 
B)  banks hold currency equal to the value of their checkable deposits. 
C)  they are ultimately the obligations of the Treasury. 
D)  they earn interest income for the depositor.

Question 6

Collateralized default swaps:

Accepted Answer

A)  helped reduce the losses from the mortgage default crisis. 
B)  involve exchanging high-risk mortgages for low-risk mortgage-backed securities. 
C)  are loans to investors in mortgage-backed securities. 
D)  insured holders of loan-backed securities in case the underlying loans were not repaid. 
A)  helped reduce the losses from the mortgage default crisis. 
B)  involve exchanging high-risk mortgages for low-risk mortgage-backed securities. 
C)  are loans to investors in mortgage-backed securities. 
D)  insured holders of loan-backed securities in case the underlying loans were not repaid.

Question 7

If P equals the price level expressed as an index number and $V equals the value of the dollar,then:

Accepted Answer

A)  P = $V - 1. 
B)  $V = 1/P. 
C)  1 = $V/P. 
D)  $V = P - 1. 
A)  P = $V - 1. 
B)  $V = 1/P. 
C)  1 = $V/P. 
D)  $V = P - 1.

Question 8

When banks bundled mortgage loans and sold the resulting mortgage-backed securities:

Accepted Answer

A)  they insulated the banking system from any risk associated with mortgage defaults. 
B)  they greatly reduced the overall risk of mortgage defaults. 
C)  buyers of these securities assumed all of the risk of mortgage defaults. 
D)  they reduced their direct exposure to mortgage default risk but were still exposed through loans to investors in mortgage-backed securities. 
A)  they insulated the banking system from any risk associated with mortgage defaults. 
B)  they greatly reduced the overall risk of mortgage defaults. 
C)  buyers of these securities assumed all of the risk of mortgage defaults. 
D)  they reduced their direct exposure to mortgage default risk but were still exposed through loans to investors in mortgage-backed securities.

Question 9

TARP,created in 2008,stands for:

Accepted Answer

A)  Toxic Asset Relief Program 
B)  Troubled Asset Recovery Plan 
C)  Toxic Asset Reinvestment Policy 
D)  Troubled Asset Relief Program 
A)  Toxic Asset Relief Program 
B)  Troubled Asset Recovery Plan 
C)  Toxic Asset Reinvestment Policy 
D)  Troubled Asset Relief Program

Question 10

Which of the following is not part of the M2 money supply?

Accepted Answer

A)  Money market mutual fund balances. 
B)  Money market deposit accounts. 
C)  Currency. 
D)  Large-denominated time deposits. 
A)  Money market mutual fund balances. 
B)  Money market deposit accounts. 
C)  Currency. 
D)  Large-denominated time deposits.

Question 11

Research for industrially advanced countries indicates that:

Accepted Answer

A)  the more independent the central bank,the lower the average annual rate of inflation. 
B)  the more independent the central bank,the higher the average annual rate of inflation. 
C)  there is no relationship between the degree of independence of a country's central bank and its inflation rate. 
D)  the more independent the central bank,the higher the average annual rate of unemployment. 
A)  the more independent the central bank,the lower the average annual rate of inflation. 
B)  the more independent the central bank,the higher the average annual rate of inflation. 
C)  there is no relationship between the degree of independence of a country's central bank and its inflation rate. 
D)  the more independent the central bank,the higher the average annual rate of unemployment.

Question 12

Stock market price quotations best exemplify money serving as a:

Accepted Answer

A)  store of value. 
B)  unit of account. 
C)  medium of exchange. 
D)  index of satisfaction. 
A)  store of value. 
B)  unit of account. 
C)  medium of exchange. 
D)  index of satisfaction.

Question 13

The amount of money reported as M2:

Accepted Answer

A)  is smaller than the amount reported as M1. 
B)  is larger than the amount reported as M1. 
C)  excludes coins and currency. 
D)  includes large ($100,000 or more)certificates of deposit. 
A)  is smaller than the amount reported as M1. 
B)  is larger than the amount reported as M1. 
C)  excludes coins and currency. 
D)  includes large ($100,000 or more)certificates of deposit.

Question 14

The Federal Open Market Committee (FOMC)is made up of:

Accepted Answer

A)  the chair of the Board of Governors along with the 12 presidents of the Federal Reserve Banks. 
B)  the seven members of the Board of Governors along with the president of the New York Federal Reserve Bank. 
C)  the seven members of the Board of Governors of the Federal Reserve System along with the three members of the Council of Economic Advisers. 
D)  the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis. 
A)  the chair of the Board of Governors along with the 12 presidents of the Federal Reserve Banks. 
B)  the seven members of the Board of Governors along with the president of the New York Federal Reserve Bank. 
C)  the seven members of the Board of Governors of the Federal Reserve System along with the three members of the Council of Economic Advisers. 
D)  the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis.

Question 15

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)  The collection or clearing of 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)  The collection or clearing of checks among commercial banks.

Question 16

Some economists are concerned that the financial rescue provided by the TARP will encourage financial investors and firms to take on greater risks in the future.This is an example of:

Accepted Answer

A)  moral hazard. 
B)  adverse selection. 
C)  a prisoner's dilemma. 
D)  shadow banking. 
A)  moral hazard. 
B)  adverse selection. 
C)  a prisoner's dilemma. 
D)  shadow banking.

Question 17

As part of its response to the financial crisis of 2007 and 2008,Federal Reserve Banks began paying interest on reserve deposits.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements is true about the high rate of mortgage defaults that contributed to the financial crisis of 2007 and 2008?

Accepted Answer

A)  High interest rates on mortgage loans were the primary cause of defaults. 
B)  The high rate of defaults occurred despite the efforts of government to discourage new home ownership and slow the growth of the housing bubble. 
C)  Prior to the rise in defaults,banks had become lax in their lending practices,resulting in a large number of bad loans. 
D)  The high rate of defaults resulted primarily from the two years of recession preceding the mortgage default crisis. 
A)  High interest rates on mortgage loans were the primary cause of defaults. 
B)  The high rate of defaults occurred despite the efforts of government to discourage new home ownership and slow the growth of the housing bubble. 
C)  Prior to the rise in defaults,banks had become lax in their lending practices,resulting in a large number of bad loans. 
D)  The high rate of defaults resulted primarily from the two years of recession preceding the mortgage default crisis.

Question 19

Checkable deposits are:

Accepted Answer

A)  included in M1. 
B)  not included in either Ml or M2. 
C)  considered to be a near money. 
D)  also called time deposits. 
A)  included in M1. 
B)  not included in either Ml or M2. 
C)  considered to be a near money. 
D)  also called time deposits.

Question 20

The "shadow banking system" refers to:

Accepted Answer

A)  the provision of credit through the underground economy when the financial crisis of 2007 and 2008 occurred. 
B)  the process by which securities exchanges provide credit for personal and business needs apart from traditional bank lending. 
C)  the series of illegal financial transactions that precipitated the financial crisis of 2007 and 2008. 
D)  mortgage loans made to homebuyers who are poor credit risks. 
A)  the provision of credit through the underground economy when the financial crisis of 2007 and 2008 occurred. 
B)  the process by which securities exchanges provide credit for personal and business needs apart from traditional bank lending. 
C)  the series of illegal financial transactions that precipitated the financial crisis of 2007 and 2008. 
D)  mortgage loans made to homebuyers who are poor credit risks.

Exam 33: Money, Banking, and Financial Institutions

(Consider This)Which of the following is not part of the M2 money supply?

Which of the following programs was not designed and implemented by the Federal Reserve?

The Glass-Steagall Act of 1933:

The purchasing power of the dollar:

Checkable deposits are classified as money because:

Collateralized default swaps:

If P equals the price level expressed as an index number and $V equals the value of the dollar,then:

When banks bundled mortgage loans and sold the resulting mortgage-backed securities:

TARP,created in 2008,stands for:

Which of the following is not part of the M2 money supply?

Research for industrially advanced countries indicates that:

Stock market price quotations best exemplify money serving as a:

The amount of money reported as M2:

The Federal Open Market Committee (FOMC)is made up of:

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

Some economists are concerned that the financial rescue provided by the TARP will encourage financial investors and firms to take on greater risks in the future.This is an example of:

As part of its response to the financial crisis of 2007 and 2008,Federal Reserve Banks began paying interest on reserve deposits.

Which of the following statements is true about the high rate of mortgage defaults that contributed to the financial crisis of 2007 and 2008?

Checkable deposits are:

The "shadow banking system" refers to:

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

The Balance of Payments, Exchange Rates, and Trade Deficits

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

The United States and the Global Economy

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