Question 1

What activity does the Fed undertake when it carries out open-market operations?

Accepted Answer

A) It buys and sells the bonds,but not the notes,of leading U.S.corporations. 
B) It changes the legal reserve requirements for member banks. 
C) It changes the discount rate,which generally increases the amount of available credit. 
D) It provides funds so that healthy depository institutions can purchase weaker ones on the open market. 
E) It deals in the purchase and sale of U.S.government securities. 
A) It buys and sells the bonds,but not the notes,of leading U.S.corporations. 
B) It changes the legal reserve requirements for member banks. 
C) It changes the discount rate,which generally increases the amount of available credit. 
D) It provides funds so that healthy depository institutions can purchase weaker ones on the open market. 
E) It deals in the purchase and sale of U.S.government securities.

Question 2

If two kinds of money are circulating at the same time,

Accepted Answer

A) one of them must be commodity money 
B) one of them must be fiat money 
C) one of them must be paper money 
D) the poorer quality one will be offered by purchasers of goods and the better one will be hoarded 
E) the better quality one will be offered by purchasers of goods and the poorer one will be hoarded 
A) one of them must be commodity money 
B) one of them must be fiat money 
C) one of them must be paper money 
D) the poorer quality one will be offered by purchasers of goods and the better one will be hoarded 
E) the better quality one will be offered by purchasers of goods and the poorer one will be hoarded

Question 3

A money market mutual fund account is a(n)

Accepted Answer

A) checking account that earns interest 
B) savings account against which one can write checks 
C) group of stocks sold under one name 
D) claim on a collection of interest-earning assets that is not guaranteed by the FDIC 
E) account with which the Fed buys and sells U.S.government securities 
A) checking account that earns interest 
B) savings account against which one can write checks 
C) group of stocks sold under one name 
D) claim on a collection of interest-earning assets that is not guaranteed by the FDIC 
E) account with which the Fed buys and sells U.S.government securities

Question 4

The Federal Reserve System has the power to

Accepted Answer

A) raise or lower federal income tax rates 
B) balance the federal government budget 
C) increase or decrease federal government spending 
D) compete with commercial banks in making loans to business firms 
E) buy and sell federal government securities 
A) raise or lower federal income tax rates 
B) balance the federal government budget 
C) increase or decrease federal government spending 
D) compete with commercial banks in making loans to business firms 
E) buy and sell federal government securities

Question 5

One advantage of a money market mutual fund account is that

Accepted Answer

A) it is guaranteed for a larger amount than are FDIC-insured deposits 
B) it is a riskless asset 
C) its shareholders typically earn more interest than they could with a regular bank account 
D) it earns high interest and is liquid 
E) it is completely liquid and riskless 
A) it is guaranteed for a larger amount than are FDIC-insured deposits 
B) it is a riskless asset 
C) its shareholders typically earn more interest than they could with a regular bank account 
D) it earns high interest and is liquid 
E) it is completely liquid and riskless

Question 6

Which of the following is not thought to have contributed to the Great Depression?

Accepted Answer

A) interest rate competition 
B) banks selling corporate stocks and bonds 
C) fears about the safety of deposits 
D) lack of bank liquidity 
E) bank holiday 
A) interest rate competition 
B) banks selling corporate stocks and bonds 
C) fears about the safety of deposits 
D) lack of bank liquidity 
E) bank holiday

Question 7

The currency of Camelot is the noble.King Arthur orders the minting of a five-noble gold coin,but it costs only four nobles to mine and process the amount of gold in the coin.Which of the following statements is true?

Accepted Answer

A) Five-noble coins will not be accepted in exchange. 
B) Five-noble coins will be accepted only by the government. 
C) When King Arthur spends these coins,he profits. 
D) When King Arthur takes these coins in again in the form of taxes,he profits. 
E) When these coins circulate through spending or taxation,King Arthur receives a profit of one noble,less seigniorage. 
A) Five-noble coins will not be accepted in exchange. 
B) Five-noble coins will be accepted only by the government. 
C) When King Arthur spends these coins,he profits. 
D) When King Arthur takes these coins in again in the form of taxes,he profits. 
E) When these coins circulate through spending or taxation,King Arthur receives a profit of one noble,less seigniorage.

Question 8

During the Great Depression,the Federal Reserve Board

Accepted Answer

A) prevented many bank failures 
B) failed to act as a lender of last resort 
C) failed to clear checks adequately 
D) began operating as the government's bank 
E) issued too many bank notes 
A) prevented many bank failures 
B) failed to act as a lender of last resort 
C) failed to clear checks adequately 
D) began operating as the government's bank 
E) issued too many bank notes

Question 9

Deregulation of banks and other depository institutions did all of the following except

Accepted Answer

A) allow all depository institutions to offer checking accounts 
B) allow all depository institutions to offer money market accounts 
C) allow thrift institutions more latitude in investing their assets 
D) allow the FDIC to open branch banks of its own 
E) tempt many depository institutions to take unreasonable risks 
A) allow all depository institutions to offer checking accounts 
B) allow all depository institutions to offer money market accounts 
C) allow thrift institutions more latitude in investing their assets 
D) allow the FDIC to open branch banks of its own 
E) tempt many depository institutions to take unreasonable risks

Question 10

Rising interest rates can create profit problems for banks because

Accepted Answer

A) short-term rates rise faster than long-term rates 
B) bank deposits turn over more rapidly than bank loans 
C) banks can't lend out money at these higher rates 
D) long-term rates rise faster than short-term rates 
E) borrowers must pay more in taxes as interest rates rise 
A) short-term rates rise faster than long-term rates 
B) bank deposits turn over more rapidly than bank loans 
C) banks can't lend out money at these higher rates 
D) long-term rates rise faster than short-term rates 
E) borrowers must pay more in taxes as interest rates rise

Question 11

The reserve ratio is the ratio of

Accepted Answer

A) Federal Reserve member banks to nonmember banks 
B) Federal Reserve nonmember banks to member banks 
C) Federal Reserve member banks to all U.S.banks 
D) Federal Reserve nonmember banks to all U.S.banks 
E) a bank's reserves to its total deposits 
A) Federal Reserve member banks to nonmember banks 
B) Federal Reserve nonmember banks to member banks 
C) Federal Reserve member banks to all U.S.banks 
D) Federal Reserve nonmember banks to all U.S.banks 
E) a bank's reserves to its total deposits

Question 12

The members of the Board of Governors of the Fed are

Accepted Answer

A) elected by the member banks 
B) chosen by the state governors 
C) elected for seven year terms 
D) all replaced after each Presidential election 
E) selected by the President with the approval of the Senate 
A) elected by the member banks 
B) chosen by the state governors 
C) elected for seven year terms 
D) all replaced after each Presidential election 
E) selected by the President with the approval of the Senate

Question 13

Federal Reserve notes are

Accepted Answer

A) token money 
B) commodity money 
C) coins 
D) backed by gold 
E) fiat money 
A) token money 
B) commodity money 
C) coins 
D) backed by gold 
E) fiat money

Question 14

In the last three decades,the number of commercial banks has declined but the number of branches has increased.

Accepted Answer

A) True 
 B)False

Question 15

The Federal Open Market Committee was established to give the Fed the power to change reserve requirements.

Accepted Answer

A) True 
 B)False

Question 16

One characteristic of houses that makes them unsuitable as a medium of exchange is that they are not portable.

Accepted Answer

A) True 
 B)False

Question 17

During the 1980s,

Accepted Answer

A) better bank management resulted in the most stable U.S.banking system since the Great Depression 
B) more U.S.banks failed than in any period since the Great Depression 
C) U.S.banks became more conservative in the type of assets they held 
D) economic conditions contributed to the stability of U.S.banks 
E) there were no U.S.bank failures for the first time in U.S.history 
A) better bank management resulted in the most stable U.S.banking system since the Great Depression 
B) more U.S.banks failed than in any period since the Great Depression 
C) U.S.banks became more conservative in the type of assets they held 
D) economic conditions contributed to the stability of U.S.banks 
E) there were no U.S.bank failures for the first time in U.S.history

Question 18

In the world of banking,checks are

Accepted Answer

A) written instructions from a depositor to the bank 
B) written instructions from one depositor to another depositor 
C) a form of commodity money 
D) token money 
E) fiat money 
A) written instructions from a depositor to the bank 
B) written instructions from one depositor to another depositor 
C) a form of commodity money 
D) token money 
E) fiat money

Question 19

Barter is more feasible in primitive societies than in modern societies because

Accepted Answer

A) there is no inflation in primitive societies 
B) there are many goods available for trade in primitive societies,so people can always find the goods that they want 
C) specialization is limited and thus there are few goods available for trade in primitive societies 
D) specialization is limited and thus there are many goods available for trade in primitive societies 
E) people in primitive societies have limited wants 
A) there is no inflation in primitive societies 
B) there are many goods available for trade in primitive societies,so people can always find the goods that they want 
C) specialization is limited and thus there are few goods available for trade in primitive societies 
D) specialization is limited and thus there are many goods available for trade in primitive societies 
E) people in primitive societies have limited wants

Question 20

In Brazil during the 19th century,copper became scarce and copper coins were no longer minted.As a result,

Accepted Answer

A) barter was prohibited by law 
B) people hoarded the limited supply of coins 
C) the Brazilian peso was no longer used as a medium of value 
D) nominal GDP fell while real GDP increased 
E) the unemployment rate fell 
A) barter was prohibited by law 
B) people hoarded the limited supply of coins 
C) the Brazilian peso was no longer used as a medium of value 
D) nominal GDP fell while real GDP increased 
E) the unemployment rate fell

Exam 14: Money and the Financial System

What activity does the Fed undertake when it carries out open-market operations?

If two kinds of money are circulating at the same time,

A money market mutual fund account is a(n)

The Federal Reserve System has the power to

One advantage of a money market mutual fund account is that

Which of the following is not thought to have contributed to the Great Depression?

The currency of Camelot is the noble.King Arthur orders the minting of a five-noble gold coin,but it costs only four nobles to mine and process the amount of gold in the coin.Which of the following statements is true?

During the Great Depression,the Federal Reserve Board

Deregulation of banks and other depository institutions did all of the following except

Rising interest rates can create profit problems for banks because

The reserve ratio is the ratio of

The members of the Board of Governors of the Fed are

Federal Reserve notes are

In the last three decades,the number of commercial banks has declined but the number of branches has increased.

The Federal Open Market Committee was established to give the Fed the power to change reserve requirements.

One characteristic of houses that makes them unsuitable as a medium of exchange is that they are not portable.

During the 1980s,

In the world of banking,checks are

Barter is more feasible in primitive societies than in modern societies because

In Brazil during the 19th century,copper became scarce and copper coins were no longer minted.As a result,

The Art and Science of Economic Analysis

Economic Tools and Economics Systems

Economic Decision Makers

Demand, supply, and Markets

Introduction to Macroeconomics

Tracking the Useconomy

Unemployment and Inflation

Productivity and Growth

Aaggregate Expenditure and Aggregate Demand

Baggregate Expenditure and Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Banking and the Money Supply

Monetary Theory and Policy

Macro Policy Debate: Active or Passive

International Trade

Externalities and the Environment

International Finance

Economic Development

understanding Graphs

National Income Accounts

The Algebra of Demand-Side Equilibrium

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