Question 1

When a bank's loans are written off, it means that the bank's:

Accepted Answer

A)  Reserves are reduced, while its debt increases 
B)  Reserves rise along with its debt 
C)  Reserves fall along with its debt 
D)  Reserves shrink, whereas its debt remains the same 
A)  Reserves are reduced, while its debt increases 
B)  Reserves rise along with its debt 
C)  Reserves fall along with its debt 
D)  Reserves shrink, whereas its debt remains the same

Question 2

Use the following table to answer the question about the money supply given the following hypothetical data for an economy.   Refer to the table above. The size of the M1 money supply is:

Accepted Answer

A)  $1,940 
B)  $2,080 
C)  $2,220 
D)  $2,730 
A)  $1,940 
B)  $2,080 
C)  $2,220 
D)  $2,730

Question 3

The Fed traditionally can grant loans to commercial banks, but not to investments banks and securities firms.

Accepted Answer

A) True 
 B)False

Question 4

When a banker records how many dollars each of his borrowers owes the bank, money is serving as a:

Accepted Answer

A)  Store of value 
B)  Unit of account 
C)  Medium of exchange 
D)  Legal tender 
A)  Store of value 
B)  Unit of account 
C)  Medium of exchange 
D)  Legal tender

Question 5

Which one of the following is considered to be a "stock" rather than a "flow" variable?

Accepted Answer

A)  Income 
B)  Money 
C)  Wages 
D)  Profits 
A)  Income 
B)  Money 
C)  Wages 
D)  Profits

Question 6

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 in 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 7

The value (or purchasing power) of money increases when the price level increases.

Accepted Answer

A) True 
 B)False

Question 8

The basic requirement for an item to function as money is that it be:

Accepted Answer

A)  Backed by precious metals-gold or silver 
B)  Authorized as legal tender by the central government 
C)  Generally accepted as a medium of exchange 
D)  Some form of debt or credit 
A)  Backed by precious metals-gold or silver 
B)  Authorized as legal tender by the central government 
C)  Generally accepted as a medium of exchange 
D)  Some form of debt or credit

Question 9

Checkable deposits are:

Accepted Answer

A)  Debts of commercial banks and savings institutions 
B)  Debts of the Federal government and government agencies 
C)  Assets of the Federal government and government agencies 
D)  Assets of commercial banks and savings institutions 
A)  Debts of commercial banks and savings institutions 
B)  Debts of the Federal government and government agencies 
C)  Assets of the Federal government and government agencies 
D)  Assets of commercial banks and savings institutions

Question 10

In 2012 and 2013, the U.S. Attorney General's office illustrated, in several major cases, a bias in favor of the goal of maintaining the stability of the financial system over:

Accepted Answer

A)  The prosecution of financial crimes 
B)  Protecting the survival of large financial firms 
C)  Promoting global competition in finance 
D)  Privatizing the financial sector 
A)  The prosecution of financial crimes 
B)  Protecting the survival of large financial firms 
C)  Promoting global competition in finance 
D)  Privatizing the financial sector

Question 11

Traditionally, the Federal Reserve can give emergency loans only to:

Accepted Answer

A)  Securities firms 
B)  Commercial banks 
C)  Investment banks 
D)  Manufacturing firms 
A)  Securities firms 
B)  Commercial banks 
C)  Investment banks 
D)  Manufacturing firms

Question 12

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 13

The use of a debit card is most similar to:

Accepted Answer

A)  Paying with a check 
B)  Using a stored-value card 
C)  Using currency 
D)  Obtaining a short-term loan 
A)  Paying with a check 
B)  Using a stored-value card 
C)  Using currency 
D)  Obtaining a short-term loan

Question 14

During the Financial Crisis of 2007-2008, Goldman Sachs, Morgan Stanley, and other financial firms with heavy exposure to the mortgage-related problems rushed to become bank holding companies in order to:

Accepted Answer

A)  Follow the order of the U.S. Treasury 
B)  Obtain bail-out money from Congress 
C)  Get massive loans from the Fed 
D)  Acquire funds from the general public 
A)  Follow the order of the U.S. Treasury 
B)  Obtain bail-out money from Congress 
C)  Get massive loans from the Fed 
D)  Acquire funds from the general public

Question 15

The Federal Reserve System of the U.S. is the country's:

Accepted Answer

A)  Financial adviser 
B)  Comptroller or Accountant 
C)  Central bank 
D)  Deposit insurance provider 
A)  Financial adviser 
B)  Comptroller or Accountant 
C)  Central bank 
D)  Deposit insurance provider

Question 16

Which of the following financial institutions pool deposits of customers and use the money to buy a portfolio of stocks or bonds or both?

Accepted Answer

A)  Thrifts 
B)  Brokerage firms 
C)  Mutual funds 
D)  Investment banks 
A)  Thrifts 
B)  Brokerage firms 
C)  Mutual funds 
D)  Investment banks

Question 17

Use the following list to answer the question about the money supply. Items
1) Money market mutual funds held by individuals
2) Savings deposits, including money market deposit accounts
3) Money market mutual funds held by businesses
4) Currency held by the public
5) Small time deposits
6) Checkable deposits
Refer to the list above. The M1 money supply is composed of items:

Accepted Answer

A)  5 and 6 
B)  4 and 6 
C)  6 and 7 
D)  1 and 4 
A)  5 and 6 
B)  4 and 6 
C)  6 and 7 
D)  1 and 4

Question 18

The Federal Reserve System consists of which of the following?

Accepted Answer

A)  Federal Open Market Committee and Office of Thrift Supervision 
B)  Federal Deposit Insurance Corporation and Controller of the Currency 
C)  U.S. Treasury Department and Bureau of Engraving and Printing 
D)  Board of Governors and the 12 Federal Reserve Banks 
A)  Federal Open Market Committee and Office of Thrift Supervision 
B)  Federal Deposit Insurance Corporation and Controller of the Currency 
C)  U.S. Treasury Department and Bureau of Engraving and Printing 
D)  Board of Governors and the 12 Federal Reserve Banks

Question 19

The Wall Street Reform & Consumer Protection Act of 2010 has the following provisions, except:

Accepted Answer

A)  It gives broader authority to the Fed to regulate all large financial institutions 
B)  It establishes a process for liquidating in an orderly way the assets of large, failing financial institutions 
C)  It creates a Financial Stability Oversight Council to look out for systemic risk in the financial system 
D)  It consolidates the operations of Wall Street, commercial banks, and other financial institutions 
A)  It gives broader authority to the Fed to regulate all large financial institutions 
B)  It establishes a process for liquidating in an orderly way the assets of large, failing financial institutions 
C)  It creates a Financial Stability Oversight Council to look out for systemic risk in the financial system 
D)  It consolidates the operations of Wall Street, commercial banks, and other financial institutions

Question 20

Checkable deposits are included in:

Accepted Answer

A)  M1 but not in M2 
B)  M2 but not in M1 
C)  both M1 and M2 
D)  neither M1 nor M2 
A)  M1 but not in M2 
B)  M2 but not in M1 
C)  both M1 and M2 
D)  neither M1 nor M2

Exam 14: Money, Banking, and Financial Institutions

When a bank's loans are written off, it means that the bank's:

Use the following table to answer the question about the money supply given the following hypothetical data for an economy. Refer to the table above. The size of the M1 money supply is:

The Fed traditionally can grant loans to commercial banks, but not to investments banks and securities firms.

When a banker records how many dollars each of his borrowers owes the bank, money is serving as a:

Which one of the following is considered to be a "stock" rather than a "flow" variable?

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 in the other hand the Fed must:

The value (or purchasing power) of money increases when the price level increases.

The basic requirement for an item to function as money is that it be:

Checkable deposits are:

In 2012 and 2013, the U.S. Attorney General's office illustrated, in several major cases, a bias in favor of the goal of maintaining the stability of the financial system over:

Traditionally, the Federal Reserve can give emergency loans only to:

The main function of the Federal Reserve System is to:

The use of a debit card is most similar to:

During the Financial Crisis of 2007-2008, Goldman Sachs, Morgan Stanley, and other financial firms with heavy exposure to the mortgage-related problems rushed to become bank holding companies in order to:

The Federal Reserve System of the U.S. is the country's:

Which of the following financial institutions pool deposits of customers and use the money to buy a portfolio of stocks or bonds or both?

The Federal Reserve System consists of which of the following?

The Wall Street Reform & Consumer Protection Act of 2010 has the following provisions, except:

Checkable deposits are included in:

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

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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