Question 1

If the Federal Reserve conducts an open-market purchase, bank reserves _____ and the money supply _____.

Accepted Answer

A) decrease; decreases 
B) increase; increases 
C) decrease; increases 
D) increase; decreases

Question 2

In the structure of the Federal Reserve, which of the following is part of the government?
I. the Board of Governors
II. the 12 regional Federal Reserve Banks

Accepted Answer

A) I only 
B) II only 
C) I and II 
D) neither I nor II

Question 3

When countries replaced gold and silver coins with paper money exchangeable for certain amounts of precious metals, the monetary system evolved from using _____ money to using _____ money.

Accepted Answer

A) commodity; fiat 
B) commodity-backed; fiat 
C) commodity; commodity-backed 
D) fiat; commodity-backed

Question 4

A debit card is money because it gives access to a bank account.

Accepted Answer

A) True 
 B)False

Question 5

The Fed's primary liabilities are the monetary base, that is, currency in circulation plus bank reserves.

Accepted Answer

A) True 
 B)False

Question 6

When the federal government writes a check, it is written on an account at the U.S. Treasury Department.

Accepted Answer

A) True 
 B)False

Question 7

Before the Panic of 1907, trusts:

Accepted Answer

A) issued their own currency. 
B) formed the New York Clearinghouse. 
C) had become very unprofitable. 
D) refused to join the New York Clearinghouse because it would have required the trusts to hold higher cash reserves, which would have decreased their profits.

Question 8

Probably the most important feature of deposit insurance is that it:

Accepted Answer

A) is paid for by the federal government. 
B) costs so little to buy the policies to keep your money safe. 
C) protects the economy against bank runs. 
D) ensures that banks will always make a profit.

Question 9

Which of the following was used as money by European settlers in the American colonies before the Revolutionary War ?
I. dixies
II. tobacco
III. paper money issued by the newly established Federal Reserve

Accepted Answer

A) I only 
B) II only 
C) III only 
D) I, II, and III

Question 10

Use the following to answer questions :
Scenario: Holding Cash
Suppose that the public holds 50% of the money supply in currency and the reserve requirement is 20%. Banks hold no excess reserves. A customer deposits $6,000 in her checkable deposit.
-(Scenario: Holding Cash) Look at the scenario Holding Cash. As a result of the deposit, the bank's loans will increase by:

Accepted Answer

A) $6,000. 
B) $1,200. 
C) $3,000. 
D) $4,800.

Question 11

A bank run occurs when:

Accepted Answer

A) too many people are trying to borrow more at one time. 
B) many bank depositors are trying to withdraw their funds from the bank. 
C) interest rates start to increase. 
D) interest rates are higher than inflation rates.

Question 12

Bonds of the U.S. government that mature in less than a year are called:

Accepted Answer

A) commercial paper. 
B) U.S. Treasury bills. 
C) federal funds. 
D) U.S. reserves.

Question 13

If the reserve ratio is 25% and the money supply increases by $100,000, then the initial reserve injection by Federal Reserve was:

Accepted Answer

A) $2,500. 
B) $10,000. 
C) $4,000. 
D) $25,000.

Question 14

A share of stock is considered:

Accepted Answer

A) an asset for the owner of the stock. 
B) part of M2. 
C) a liability for the owner of the stock. 
D) part of the money supply.

Question 15

One of the functions of the Reconstruction Finance Corporation, established in 1932, was to make loans to commercial banks.

Accepted Answer

A) True 
 B)False

Question 16

During the financial crisis of 2008, the Treasury Department prevented the failure of Bear Stearns investment bank and AIG insurance company because they were considered too important to the economy to fail.

Accepted Answer

A) True 
 B)False

Question 17

If the required reserve ratio is 10% and the Fed conducts an open market purchase of $100, what is the maximum possible change in the money supply?

Accepted Answer

A) $100 
B) $1,000 
C) $10,000 
D) $10

Question 18

The purpose of the bank holiday declared by Franklin Roosevelt in 1933 was to:

Accepted Answer

A) close all banks until regulators could determine how to solve the banking crisis. 
B) give overworked bank employees a rest. 
C) exempt banks from taxes until the Depression was over. 
D) encourage people to use cash instead of checks.

Question 19

As a result of the S&L crisis, in 1989 Congress:

Accepted Answer

A) decreased regulation of thrifts. 
B) merged all remaining S&Ls with financially sound commercial banks. 
C) passed legislation prohibiting any financial institution other than S&Ls to make mortgages. 
D) empowered two government agencies, Fannie Mae and Freddie Mac, to take over much of the mortgage lending previously done by S&Ls.

Question 20

Explain the role of the housing market in the 2008 financial crisis.

Accepted Answer

The answer of Explain the role of the housing market...

Exam 14: Money, Banking, and the Federal Reserve System

If the Federal Reserve conducts an open-market purchase, bank reserves _ and the money supply _.

In the structure of the Federal Reserve, which of the following is part of the government? I. the Board of Governors II. the 12 regional Federal Reserve Banks

When countries replaced gold and silver coins with paper money exchangeable for certain amounts of precious metals, the monetary system evolved from using _ money to using _ money.

A debit card is money because it gives access to a bank account.

The Fed's primary liabilities are the monetary base, that is, currency in circulation plus bank reserves.

When the federal government writes a check, it is written on an account at the U.S. Treasury Department.

Before the Panic of 1907, trusts:

Probably the most important feature of deposit insurance is that it:

Which of the following was used as money by European settlers in the American colonies before the Revolutionary War ? I. dixies II. tobacco III. paper money issued by the newly established Federal Reserve

A bank run occurs when:

Bonds of the U.S. government that mature in less than a year are called:

If the reserve ratio is 25% and the money supply increases by $100,000, then the initial reserve injection by Federal Reserve was:

A share of stock is considered:

One of the functions of the Reconstruction Finance Corporation, established in 1932, was to make loans to commercial banks.

During the financial crisis of 2008, the Treasury Department prevented the failure of Bear Stearns investment bank and AIG insurance company because they were considered too important to the economy to fail.

If the required reserve ratio is 10% and the Fed conducts an open market purchase of $100, what is the maximum possible change in the money supply?

The purpose of the bank holiday declared by Franklin Roosevelt in 1933 was to:

As a result of the S&L crisis, in 1989 Congress:

Explain the role of the housing market in the 2008 financial crisis.