Question 1

Compared to many other countries,the United States has

Accepted Answer

A) fewer banks,with assets distributed more evenly 
B) fewer commercial banks,with assets concentrated in a few large banks 
C) more banks,with assets concentrated in a few large banks 
D) more commercial banks,with assets more widely distributed among banks 
E) more commercial banks,with assets concentrated in a few large banks 
A) fewer banks,with assets distributed more evenly 
B) fewer commercial banks,with assets concentrated in a few large banks 
C) more banks,with assets concentrated in a few large banks 
D) more commercial banks,with assets more widely distributed among banks 
E) more commercial banks,with assets concentrated in a few large banks

Question 2

A mortgage-backed secutiry is hundreds of mortgages bundled together which represents a claim on the monthly payments made on those mortgages.

Accepted Answer

A) True 
 B)False

Question 3

Thrift institutions encountered serious difficulties in the 1970s because

Accepted Answer

A) money market mutual funds became serious competitors for their deposits 
B) the U.S.Treasury deposited larger sums of money than the thrift institutions could effectively manage 
C) interest rates they had to pay on deposits began to fall 
D) each of the largest banks increased the pressure on the thrifts by building a nationwide network of branch banks 
E) the FDIC increased the reserve requirement for thrifts 
A) money market mutual funds became serious competitors for their deposits 
B) the U.S.Treasury deposited larger sums of money than the thrift institutions could effectively manage 
C) interest rates they had to pay on deposits began to fall 
D) each of the largest banks increased the pressure on the thrifts by building a nationwide network of branch banks 
E) the FDIC increased the reserve requirement for thrifts

Question 4

The interest rate charged by the Federal Reserve banks on loans to banking institutions is

Accepted Answer

A) the discount rate 
B) the prime rate 
C) the federal funds rate 
D) the Federal Reserve rate 
E) the mortgage interest rate 
A) the discount rate 
B) the prime rate 
C) the federal funds rate 
D) the Federal Reserve rate 
E) the mortgage interest rate

Question 5

A major reason for the development of money market mutual funds in the 1970s was that

Accepted Answer

A) open market operations were suspended 
B) bank deposit rates were capped at levels below market interest rates 
C) money market funds offered more flexible checking privileges than banks 
D) they were considered to be safer than banks 
E) money markets did not exist until 1970 
A) open market operations were suspended 
B) bank deposit rates were capped at levels below market interest rates 
C) money market funds offered more flexible checking privileges than banks 
D) they were considered to be safer than banks 
E) money markets did not exist until 1970

Question 6

The Board of Governors

Accepted Answer

A) are elected by the House of Representatives to seven-year terms 
B) are appointed for life by the President of the United States 
C) are directly responsible to the Secretary of Treasury and the Comptroller's office 
D) was disbanded by Roosevelt in the 1930s 
E) consist of seven members appointed to 14-year terms by the president 
A) are elected by the House of Representatives to seven-year terms 
B) are appointed for life by the President of the United States 
C) are directly responsible to the Secretary of Treasury and the Comptroller's office 
D) was disbanded by Roosevelt in the 1930s 
E) consist of seven members appointed to 14-year terms by the president

Question 7

The distinction between depository institutions and other financial institutions is that

Accepted Answer

A) only depository institutions seek to maximize profit 
B) only depository institutions don't seek to maximize profit 
C) depository institutions do not make loans 
D) only depository institutions make loans 
E) only depository institutions receive funds through customer deposits 
A) only depository institutions seek to maximize profit 
B) only depository institutions don't seek to maximize profit 
C) depository institutions do not make loans 
D) only depository institutions make loans 
E) only depository institutions receive funds through customer deposits

Question 8

In general,the more money in existence,the better it functions as a store of value.

Accepted Answer

A) True 
 B)False

Question 9

The Banking Act of 1933

Accepted Answer

A) allowed banks to hold any assets,without the need for approval by the Fed 
B) allowed banks to hold any assets,subject to approval by the Fed 
C) allowed banks to hold U.S.government securities,subject to approval by the Fed 
D) forbade banks from buying corporate stocks and bonds,in order to put a ceiling on bank profits 
E) forbade banks from buying corporate stocks and bonds,in order to minimize bank risk 
A) allowed banks to hold any assets,without the need for approval by the Fed 
B) allowed banks to hold any assets,subject to approval by the Fed 
C) allowed banks to hold U.S.government securities,subject to approval by the Fed 
D) forbade banks from buying corporate stocks and bonds,in order to put a ceiling on bank profits 
E) forbade banks from buying corporate stocks and bonds,in order to minimize bank risk

Question 10

Some financial institutions are known as financial intermediaries because they serve as go-betweens that link

Accepted Answer

A) the government and taxpayers through IRAs 
B) savers and borrowers 
C) employers and employees 
D) firms and the government 
E) firms and consumers 
A) the government and taxpayers through IRAs 
B) savers and borrowers 
C) employers and employees 
D) firms and the government 
E) firms and consumers

Question 11

The primary purpose of the Federal Open Market Committee (FOMC)is to

Accepted Answer

A) set reserve requirements 
B) extend loans to member banks of the Fed 
C) buy and sell government securities 
D) distribute Federal Reserve notes 
E) enforce bank regulations 
A) set reserve requirements 
B) extend loans to member banks of the Fed 
C) buy and sell government securities 
D) distribute Federal Reserve notes 
E) enforce bank regulations

Question 12

The main source of profit for financial institutions is

Accepted Answer

A) their ownership of stocks in commercial corporations 
B) their ownership of real assets received in foreclosures on loans to households 
C) the fees charged for holding and servicing checking accounts 
D) the difference between interest paid on deposits and interest received on loans 
E) the difference between the cost of creating new money and the interest paid on loans 
A) their ownership of stocks in commercial corporations 
B) their ownership of real assets received in foreclosures on loans to households 
C) the fees charged for holding and servicing checking accounts 
D) the difference between interest paid on deposits and interest received on loans 
E) the difference between the cost of creating new money and the interest paid on loans

Question 13

Bank notes created by a goldsmith in a fractional reserve system were

Accepted Answer

A) not backed by anything of value 
B) commodity money,since they were backed by gold 
C) not commodity money fully,since not all the gold was there 
D) representative of commodity money 
E) fiat money 
A) not backed by anything of value 
B) commodity money,since they were backed by gold 
C) not commodity money fully,since not all the gold was there 
D) representative of commodity money 
E) fiat money

Question 14

All of the following are powers of the Federal Reserve System except

Accepted Answer

A) the ability to buy and sell government securities 
B) the authority to issue Federal Reserve notes 
C) the responsibility to clear checks 
D) the obligation to make loans to the general public 
E) the power to set the reserve requirement for banks 
A) the ability to buy and sell government securities 
B) the authority to issue Federal Reserve notes 
C) the responsibility to clear checks 
D) the obligation to make loans to the general public 
E) the power to set the reserve requirement for banks

Question 15

The value of money is fundamentally determined by the

Accepted Answer

A) reputation of the bank that holds it 
B) reputation of the person who holds it 
C) gold or silver for which it can be redeemed 
D) value of the commodities for which it can be traded 
E) value of comparable stocks and bonds 
A) reputation of the bank that holds it 
B) reputation of the person who holds it 
C) gold or silver for which it can be redeemed 
D) value of the commodities for which it can be traded 
E) value of comparable stocks and bonds

Question 16

The reason that the Federal Reserve System has not been more effective is that it lacks the power to set legal reserve requirements for member banks.

Accepted Answer

A) True 
 B)False

Question 17

The most effective mechanism for reducing runs on banks is

Accepted Answer

A) the discount rate 
B) deposit insurance 
C) the reserve requirement 
D) open market operations 
E) the Federal Reserve note 
A) the discount rate 
B) deposit insurance 
C) the reserve requirement 
D) open market operations 
E) the Federal Reserve note

Question 18

According to Gresham's Law,when two kinds of money are in circulation (such as $1 gold coins and $1 silver coins),the preferred--or more highly valued--form of money will tend to predominate,driving the "bad" money out of circulation.

Accepted Answer

A) True 
 B)False

Question 19

People came to accept fiat money because they believed that others would accept it as well.

Accepted Answer

A) True 
 B)False

Question 20

Fiat money is the only thing that can be used as a standard of value.

Accepted Answer

A) True 
 B)False

Exam 14: Money and the Financial System

Compared to many other countries,the United States has

A mortgage-backed secutiry is hundreds of mortgages bundled together which represents a claim on the monthly payments made on those mortgages.

Thrift institutions encountered serious difficulties in the 1970s because

The interest rate charged by the Federal Reserve banks on loans to banking institutions is

A major reason for the development of money market mutual funds in the 1970s was that

The Board of Governors

The distinction between depository institutions and other financial institutions is that

In general,the more money in existence,the better it functions as a store of value.

The Banking Act of 1933

Some financial institutions are known as financial intermediaries because they serve as go-betweens that link

The primary purpose of the Federal Open Market Committee (FOMC)is to

The main source of profit for financial institutions is

Bank notes created by a goldsmith in a fractional reserve system were

All of the following are powers of the Federal Reserve System except

The value of money is fundamentally determined by the

The reason that the Federal Reserve System has not been more effective is that it lacks the power to set legal reserve requirements for member banks.

The most effective mechanism for reducing runs on banks is

According to Gresham's Law,when two kinds of money are in circulation (such as $1 gold coins and $1 silver coins),the preferred--or more highly valued--form of money will tend to predominate,driving the "bad" money out of circulation.

People came to accept fiat money because they believed that others would accept it as well.

Fiat money is the only thing that can be used as a standard of value.

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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