Question 1

Holding the money deposits of businesses and households and making loans to the public are the basic functions of:

Accepted Answer

A)   District banks of the Federal Reserve System
B)   Commercial banks and thrift institutions
C)   The Open Market Committee and the Board of Governors
D)   The Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance CorporationE) C) and D)
F) A) and D)

Question 2

Which of the following bank-related policies of the Fed fosters huge moral hazard problems:

Accepted Answer

A)   Printing of paper currency for banks to distribute
B)   Too-big-to-fail policy
C)   Check-clearing and deposit transfers
D)   Providing banking services to governmentsE) A) and D)
F) A) and C)

Question 3

The "bail-out" money that went to giant financial institutions like Citibank and Goldman Sachs, along with General Motors and Chrysler during the Financial Crisis and the Great Recession, came from the:

Accepted Answer

A)   American Recovery and Reinvestment Act
B)   Troubled Assets Relief Program
C)   Primary Dealer Credit Facility
D)   Term Securities Lending FacilityE) C) and D)
F) A) and B) B

Question 4

The Glass-Steagall Act of 1933 required:

Accepted Answer

A)   The government to bail out failing large banks
B)   The establishment of "one-stop shopping" for financial services
C)   A separation of commercial banking from the trading of stocks
D)   Government regulation to pursue a "too big to fail" policyE) A) and D)
F) None of the above

Question 5

The Federal Open Market Committee (FOMC) :

Accepted Answer

A)   Provides advice on banking stability to the Fed
B)   Monitors regulatory banking laws for member banks
C)   Sets policy on the sale and purchase of government bonds by the Fed
D)   Follows the actions and operations of financial markets to keep them open and competitiveE) All of the above
F) A) and B)

Question 6

The Financial Crisis of 2007-2008 halted the consolidation in the U.S. financial industry that had caused a declining number but increasing size of firms in the industry prior to the crisis.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following trends had been happening in the banking industry even before the Financial Crisis of 2007-2008?

Accepted Answer

A)   An expansion in the number of banks and thrifts
B)   A consolidation of services offered by financial institutions
C)   A decrease in the integration of global financial markets
D)   An increase in the amount of savings held by banks relative to other financial institutionsE) C) and D)
F) B) and D)

Question 8

To keep high inflation from eroding the value of money, monetary authorities in the United States:

Accepted Answer

A)   Create token money that is less than its intrinsic value
B)   Make paper money legal tender for the payment of debt
C)   Establish insurance on checkable deposit accounts
D)   Control the supply of money in the economyE) C) and D)
F) A) and D) D

Question 9

The Federal Reserve System is divided into:

Accepted Answer

A)   5 districts
B)   7 districts
C)   12 districts
D)   15 districtsE) A) and D)
F) B) and C)

Question 10

The government bail-out of large institutions creates the problem of moral hazard, which means that these large firms will:

Accepted Answer

A)   Not be able to pay back the bail-out money
B)   Have an incentive to make highly risky investments
C)   Now have to play it safer to reduce their risks
D)   Be limited in terms of the securities and services that they get involved inE) B) and C)
F) B) and D)

Question 11

Which of the following functions of money enables society to gain the benefits of geographic and labor specialization?

Accepted Answer

A)   Unit of account
B)   Store of value
C)   Medium of exchange
D)   Medium of deferred paymentE) A) and D)
F) None of the above

Question 12

With token money, the face value is greater than the intrinsic value.

Accepted Answer

A) True 
 B)False

Question 13

The consolidation in the financial industry into fewer and larger firms:

Accepted Answer

A)   Progressed further in the Financial Crisis of 2007-2008
B)   Halted in the Financial Crisis of 2007-2008
C)   Slowed down in the Financial Crisis of 2007-2008
D)   Was reversed in the Financial Crisis of 2007-2008E) A) and B)
F) A) and D)

Question 14

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 M2 money supply is:

Accepted Answer

A)   $3,730
B)   $3,980
C)   $4,330
D)   $4,470E) C) and D)
F) All of the above C

Question 15

Using a debit card is like writing a check; the amount will be deducted from one's checking account.

Accepted Answer

A) True 
 B)False

Question 16

The TARP loans and the Fed's lender-of-last-resort actions that bailed out large, failing financial institutions helped reduce the moral-hazard problem in financial management.

Accepted Answer

A) True 
 B)False

Question 17

Joe deposits $200 in currency into his checking account at a bank. This deposit is treated as:

Accepted Answer

A)   A subtraction of $200 from the money supply because the $200 in currency is no longer in circulation
B)   An addition of $200 to the money supply because of the creation of a checkable deposit of $200
C)   An addition of $200 to the money supply because the bank holds $200 in currency and the checking account has been increased by $200
D)   No change in the money supply because the $200 in currency has been converted to a $200 increase in checkable depositsE) A) and C)
F) A) and D)

Question 18

If product prices were stated in terms of tobacco leaves, then tobacco leaves would be functioning primarily as:

Accepted Answer

A)   Fiat money
B)   Legal tender
C)   A store of value
D)   A unit of accountE) B) and C)
F) B) and D)

Question 19

The paper currencies of the U.S. are also called:

Accepted Answer

A)   Federal Reserve notes
B)   Treasury Bills
C)   U.S. Government notes
D)   Treasury bondsE) A) and C)
F) C) and D)

Question 20

One major advantage of money serving as a medium of exchange is that it allows society to:

Accepted Answer

A)   Transfer purchasing power from the present to the future
B)   Measure the relative worth of products
C)   Escape the complications of barter
D)   Use credit cards instead of currencyE) B) and C)
F) A) and B)

Exam 14: Money, Banking, and Financial Institutions

Holding the money deposits of businesses and households and making loans to the public are the basic functions of:

Correct AnswerverifiedShow Answer

Which of the following bank-related policies of the Fed fosters huge moral hazard problems:

Correct AnswerverifiedShow Answer

The "bail-out" money that went to giant financial institutions like Citibank and Goldman Sachs, along with General Motors and Chrysler during the Financial Crisis and the Great Recession, came from the:

Correct AnswerverifiedB

The Glass-Steagall Act of 1933 required:

Correct AnswerverifiedShow Answer

The Federal Open Market Committee (FOMC) :

Correct AnswerverifiedShow Answer

The Financial Crisis of 2007-2008 halted the consolidation in the U.S. financial industry that had caused a declining number but increasing size of firms in the industry prior to the crisis.

Correct AnswerverifiedShow Answer

Which of the following trends had been happening in the banking industry even before the Financial Crisis of 2007-2008?

Correct AnswerverifiedShow Answer

To keep high inflation from eroding the value of money, monetary authorities in the United States:

Correct AnswerverifiedD

The Federal Reserve System is divided into:

Correct AnswerverifiedShow Answer

The government bail-out of large institutions creates the problem of moral hazard, which means that these large firms will:

Correct AnswerverifiedShow Answer

Which of the following functions of money enables society to gain the benefits of geographic and labor specialization?

Correct AnswerverifiedShow Answer

With token money, the face value is greater than the intrinsic value.

Correct AnswerverifiedShow Answer

The consolidation in the financial industry into fewer and larger firms:

Correct AnswerverifiedShow Answer

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 M2 money supply is:

Correct AnswerverifiedC

Using a debit card is like writing a check; the amount will be deducted from one's checking account.

Correct AnswerverifiedShow Answer

The TARP loans and the Fed's lender-of-last-resort actions that bailed out large, failing financial institutions helped reduce the moral-hazard problem in financial management.

Correct AnswerverifiedShow Answer

Joe deposits $200 in currency into his checking account at a bank. This deposit is treated as:

Correct AnswerverifiedShow Answer

If product prices were stated in terms of tobacco leaves, then tobacco leaves would be functioning primarily as:

Correct AnswerverifiedShow Answer

The paper currencies of the U.S. are also called:

Correct AnswerverifiedShow Answer

One major advantage of money serving as a medium of exchange is that it allows society to:

Correct AnswerverifiedShow Answer

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D

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C

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