Question 1

The members of the Federal Reserve Board

Accepted Answer

A)  serve seven-year terms.
B)  are appointed by the American Economic Association.
C)  are elected by votes of the 12 presidents of the Federal Reserve Banks.
D)  are appointed for 14-year terms.E) A) and B)
F) B) and C)

Question 2

What are "mortgage-backed securities"?

Accepted Answer

A)  company stock shares for financial institutions that lend to home buyers
B)  bonds backed by mortgage payments
C)  Treasury bills and savings bonds that banks sold to maintain liquidity during the mortgage default crisis
D)  insurance against mortgage loan defaultsE) C) and D)
F) A) and D)

Question 3

The functions of money are to serve as a

Accepted Answer

A)  resource allocator, method for accounting, and means of income distribution.
B)  unit of account, store of value, and medium of exchange.
C)  determinant of consumption, investment, and government spending.
D)  factor of production, exchange, and aggregate supply.E) All of the above
F) None of the above

Question 4

Stabilizing a nation's price level and the purchasing power of its money can be achieved

Accepted Answer

A)  only with fiscal policy.
B)  only with monetary policy.
C)  with both fiscal and monetary policy.
D)  with neither fiscal nor monetary policy.E) All of the above
F) A) and B)

Question 5

When paper money is designated as legal tender, it means that

Accepted Answer

A)  it is printed by the government.
B)  its supply is controlled by the government.
C)  it is a means of payment by law.
D)  it will be accepted by the government.E) None of the above
F) A) and B)

Question 6

During periods of rapid inflation, money may cease to work as a medium of exchange

Accepted Answer

A)  unless it has been designated legal tender.
B)  unless it is backed by gold.
C)  because it is too scarce for everyone to have enough for transactions.
D)  because people and businesses will not want to accept it in transactions.E) C) and D)
F) B) and D)

Question 7

The Federal Deposit Insurance Corporation (FDIC)  insures deposits up to $250,000 in

Accepted Answer

A)  mutual fund companies and pension fund companies.
B)  thrifts and insurance companies.
C)  commercial banks and thrifts.
D)  securities firms and insurance companies.E) B) and D)
F) A) and B)

Question 8

Mutual fund companies' activities make their customers become indirect owners of stocks and bonds in the mutual fund companies' investment portfolios.

Accepted Answer

A) True 
 B)False

Question 9

When the Fed acts as a "lender of last resort," as it did in the financial crisis of 2007-2008, it is performing its role of

Accepted Answer

A)  controlling the money supply.
B)  setting the reserve requirements.
C)  being the bankers' bank.
D)  providing for check clearing and collection.E) A) and B)
F) None of the above

Question 10

The Great Recession was the main cause of the Financial Crisis of 2007-2008.

Accepted Answer

A) True 
 B)False

Question 11

If the price index rises from 200 to 250, the purchasing power value of the dollar

Accepted Answer

A)  may either rise or fall.
B)  will rise by 25 percent.
C)  will fall by 25 percent.
D)  will fall by 20 percent.E) All of the above
F) B) and C)

Question 12

As long as the owner (seller) of an asset is willing to accept any price, the asset will sell quickly, thus making it meet the full definition of liquidity.

Accepted Answer

A) True 
 B)False

Question 13

Fidelity, Putnam, Janus, and Vanguard are examples of mutual fund companies.

Accepted Answer

A) True 
 B)False

Question 14

Currency held in bank vaults The M2 definition of money includes

Accepted Answer

A)  items 2, 3, 4, 6, 7, 8, and 10.
B)  items 3, 4, 5, and 6.
C)  items 2, 3, 4, 6, 7, and 8.
D)  all of the items listed.E) All of the above
F) A) and B)

Question 15

If you are estimating your total expenses for school next semester, you are using money primarily as

Accepted Answer

A)  a medium of exchange.
B)  a store of value.
C)  a unit of account.
D)  an economic investment.E) All of the above
F) B) and D)

Question 16

Which of the following "backs" the value of money in the United States?

Accepted Answer

A)  the gold stored in the Federal Reserve Bank of New York
B)  the acceptability of it as a medium of exchange
C)  the willingness of foreign governments to hold U.S.dollars
D)  the size of the budget surplus in the U.S.governmentE) A) and B)
F) A) and C)

Question 17

The bailout 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 Facility.E) B) and C)
F) A) and D)

Question 18

Which of the following statements is true about the high rate of mortgage defaults that contributed to the financial crisis of 2007 and 2008?

Accepted Answer

A)  High interest rates on mortgage loans were the primary cause of defaults.
B)  The high rate of defaults occurred despite the efforts of government to discourage new home ownership and slow the growth of the housing bubble.
C)  Prior to the rise in defaults, banks had become lax in their lending practices, resulting in a large number of bad loans.
D)  The high rate of defaults resulted primarily from the two years of recession preceding the mortgage default crisis.E) A) and D)
F) B) and C)

Question 19

TIAA-CREF, Teamsters' Union, and CalPERS are all primarily

Accepted Answer

A)  commercial banks.
B)  thrifts.
C)  insurance companies.
D)  pension funds.E) A) and B)
F) B) and C)

Question 20

(Consider This)  Which of the following is not part of the M2 money supply?

Accepted Answer

A)  currency in circulation
B)  credit card balances
C)  small-denominated time deposits of less than $100,000
D)  checkable depositsE) B) and C)
F) A) and D)

Exam 34: Money, Banking, and Financial Institutions

(Consider This) Which of the following is not part of the M2 money supply?

Correct AnswerverifiedShow Answer

The functions of money are to serve as a

Correct AnswerverifiedShow Answer

Fidelity, Putnam, Janus, and Vanguard are examples of mutual fund companies.

Correct AnswerverifiedShow Answer

Mutual fund companies' activities make their customers become indirect owners of stocks and bonds in the mutual fund companies' investment portfolios.

Correct AnswerverifiedShow Answer

The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 in

Correct AnswerverifiedShow Answer

Stabilizing a nation's price level and the purchasing power of its money can be achieved

Correct AnswerverifiedShow Answer

The bailout 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 AnswerverifiedShow Answer

When paper money is designated as legal tender, it means that

Correct AnswerverifiedShow Answer

The members of the Federal Reserve Board

Correct AnswerverifiedShow Answer

If you are estimating your total expenses for school next semester, you are using money primarily as

Correct AnswerverifiedShow Answer

If the price index rises from 200 to 250, the purchasing power value of the dollar

Correct AnswerverifiedShow Answer

When the Fed acts as a "lender of last resort," as it did in the financial crisis of 2007-2008, it is performing its role of

Correct AnswerverifiedShow Answer

Which of the following "backs" the value of money in the United States?

Correct AnswerverifiedShow Answer

Currency held in bank vaults The M2 definition of money includes

Correct AnswerverifiedShow Answer

During periods of rapid inflation, money may cease to work as a medium of exchange

Correct AnswerverifiedShow Answer

Which of the following statements is true about the high rate of mortgage defaults that contributed to the financial crisis of 2007 and 2008?

Correct AnswerverifiedShow Answer

The Great Recession was the main cause of the Financial Crisis of 2007-2008.

Correct AnswerverifiedShow Answer

What are "mortgage-backed securities"?

Correct AnswerverifiedShow Answer

As long as the owner (seller) of an asset is willing to accept any price, the asset will sell quickly, thus making it meet the full definition of liquidity.

Correct AnswerverifiedShow Answer

TIAA-CREF, Teamsters' Union, and CalPERS are all primarily

Correct AnswerverifiedShow Answer

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