Question 1

The Federal Reserve System was established by the Federal Reserve Act of

Accepted Answer

A)   1913.
B)   1933.
C)   1945.
D)   1955.E) All of the above
F) B) and D)

Question 2

Which one of the following is true about the U.S. Federal Reserve System?

Accepted Answer

A)   There are 12 regional Federal Reserve Banks.
B)   The head of the U.S. Treasury also chairs the Federal Reserve Board.
C)   There are 14 members of the Federal Reserve Board.
D)   The Open Market Committee is smaller in size than the Federal Reserve Board.E) A) and B)
F) None of the above

Question 3

An asset's liquidity refers to its ability to be

Accepted Answer

A)   bought and stored.
B)   increasing in value over time.
C)   used and enjoyed.
D)   a means of payment.E) A) and B)
F) A) and C)

Question 4

Year  Price Level  Value of Dollar 11.00$1.0021.2530.8040.50\begin{array} { | c | c | c | } \hline 	ext { Year } & 	ext { Price Level } & 	ext { Value of Dollar } \\hline 1 & 1.00 & \$ 1.00 \\hline 2 & 1.25 & \\hline 3 & 0.80 & \\hline 4 & 0.50 & \\hline\end{array} Year 1234​ Price Level 1.001.250.800.50​ Value of Dollar $1.00​​  Refer to the given table. The value of the dollar in year 3 is

Accepted Answer

A)   $1.20.
B)   $1.25.
C)   $0.80.
D)   $1.10. E) All of the above
F) A) and C)

Question 5

Why are today's coins not made of precious metals?

Accepted Answer

If coins were made of precious metals, t...

Question 6

In the United States, the money supply (M1)  includes

Accepted Answer

A)   coins, paper currency, and checkable deposits.
B)   currency, checkable deposits, and Series E bonds.
C)   coins, paper currency, checkable deposits, and credit balances with brokers.
D)   paper currency, coins, gold certiﬁcates, and time deposits.E) A) and B)
F) None of the above

Question 7

Suppose that the federal government suddenly declared that wheat was to be used as money. What is a possible outcome of that decision?

Accepted Answer

A)   The value of the "wheat dollar" would be unstable depending on crop yields from year to year.
B)   Farmers would replace corn and soybean crops with wheat.
C)   Wheat would function as money so long as people accept it in exchange for goods and services.
D)   All of these are possible outcomes.E) B) and C)
F) C) and D)

Question 8

The major wave of defaults on home mortgages in 2007 destabilized

Accepted Answer

A)   only the banks that directly made the mortgage loans.
B)   only the mortgage brokers, not the commercial banks.
C)   many banks, including those that made the loans indirectly.
D)   mostly large banks, but not too many small ones.E) A) and D)
F) A) and C)

Question 9

(Consider This)  Which of the following is not true about the use of a credit card?

Accepted Answer

A)   It is a means of deferring payment for a short period of time.
B)   It allows people to "economize" on the use of money.
C)   Credit card balances are part of M2 but not part of M1.
D)   A credit card transaction is not the same as a debit card transaction.E) None of the above
F) B) and C)

Question 10

The Federal Open Market Committee (FOMC)  of the Federal Reserve System is primarily for

Accepted Answer

A)   maintaining cash reserves that can be used to settle international transactions.
B)   supervising banks to make sure that markets are open to all and remain competitive.
C)   issuing currency and acting as the ﬁscal agent for the Federal government.
D)   setting the Fed's monetary policy and directing the purchase and sale of government securities.E) B) and C)
F) A) and D)

Question 11

Checkable deposits are money because they are

Accepted Answer

A)   legal tender.
B)   ﬁat money.
C)   acceptable as payment.
D)   token money.E) A) and B)
F) C) and D)

Question 12

"Near monies" are included in

Accepted Answer

A)   both M1 and M2.
B)   M2 only.
C)   M1 only.
D)   neither M1 nor M2.E) A) and C)
F) B) and C)

Question 13

(Last Word)  The Assistant U.S. Attorney General in charge of prosecuting ﬁnancial crimes did which of the following in response to HSBC bank's years of money laundering and helping ﬁrms and individuals cheat on their taxes?

Accepted Answer

A)   Imposed ﬁnes on HSBC and prosecuted key executives so as to diminish moral hazard in the ﬁnancial services industry.
B)   Filed an antitrust lawsuit so as to break up HSBC without disrupting the ﬁnancial system.
C)   Imposed only modest ﬁnes on HSBC so as not to destabilize the bank and the ﬁnancial system.
D)   Imposed sanctions based on the provisions of the 2010 Wall Street Reform and Consumer Protection Act.E) B) and D)
F) A) and D)

Question 14

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) C) and D)
F) B) and C)

Question 15

Theoretically, during a ﬁnancial crisis, the Fed is supposed to act as a lender of last resort to

Accepted Answer

A)   all insolvent banks.
B)   insolvent banks that are illiquid.
C)   solvent banks that are illiquid.
D)   insolvent banks that are highly liquid.E) A) and D)
F) A) and C)

Question 16

Describe the three major units of the Federal Reserve System and their functions.

Accepted Answer

The Board of Governors consists of seven...

Question 17

State the formula for the relationship between the purchasing power of the U.S. dollar and the price level.

Accepted Answer

$V = 1/P, where V is the value of the do...

Question 18

In practice, during a ﬁnancial crisis, the Fed and other central banks are under pressure to adopt an "extend and pretend" policy, in order to contain the wave bankruptcies. "Extend and pretend" refers to extending loans

Accepted Answer

A)   only to ﬁnancial ﬁrms that are solvent, as long as the ﬁrms could pledge enough assets.
B)   to ﬁnancial ﬁrms, both solvent and insolvent, as long as the ﬁrms could pledge enough assets.
C)   to ﬁnancial ﬁrms in need of liquidity, regardless of whether the ﬁrms pledge enough assets or not.
D)   to ﬁrms and then pretending that the loans are being repaid when they become due.E) A) and B)
F) None of the above

Question 19

What is the main purpose of the Federal Open Market Committee (FOMC)?

Accepted Answer

The FOMC meets regularly to direct the p...

Question 20

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) B) and C)
F) A) and D)

Exam 14: Money, Banking, and Financial Institutions

The Federal Open Market Committee (FOMC) of the Federal Reserve System is primarily for

Correct AnswerverifiedShow Answer

Describe the three major units of the Federal Reserve System and their functions.

Correct AnswerverifiedThe Board of Governors consists of seven...View AnswerShow Answer

In practice, during a ﬁnancial crisis, the Fed and other central banks are under pressure to adopt an "extend and pretend" policy, in order to contain the wave bankruptcies. "Extend and pretend" refers to extending loans

Correct AnswerverifiedShow Answer

Checkable deposits are money because they are

Correct AnswerverifiedShow Answer

"Near monies" are included in

Correct AnswerverifiedShow Answer

Why are today's coins not made of precious metals?

Correct AnswerverifiedIf coins were made of precious metals, t...View AnswerShow Answer

(Consider This) Which of the following is not true about the use of a credit card?

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

The Federal Reserve System was established by the Federal Reserve Act of

Correct AnswerverifiedShow Answer

What is the main purpose of the Federal Open Market Committee (FOMC)?

Correct AnswerverifiedThe FOMC meets regularly to direct the p...View AnswerShow Answer

State the formula for the relationship between the purchasing power of the U.S. dollar and the price level.

Correct Answerverified$V = 1/P, where V is the value of the do...View AnswerShow Answer

(Last Word) The Assistant U.S. Attorney General in charge of prosecuting ﬁnancial crimes did which of the following in response to HSBC bank's years of money laundering and helping ﬁrms and individuals cheat on their taxes?

Correct AnswerverifiedShow Answer

Suppose that the federal government suddenly declared that wheat was to be used as money. What is a possible outcome of that decision?

Correct AnswerverifiedShow Answer

Theoretically, during a ﬁnancial crisis, the Fed is supposed to act as a lender of last resort to

Correct AnswerverifiedShow Answer

In the United States, the money supply (M1) includes

Correct AnswerverifiedShow Answer

The major wave of defaults on home mortgages in 2007 destabilized

Correct AnswerverifiedShow Answer

An asset's liquidity refers to its ability to be

Correct AnswerverifiedShow Answer

Which one of the following is true about the U.S. Federal Reserve System?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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The Board of Governors consists of seven...
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If coins were made of precious metals, t...
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Correct Answer
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The FOMC meets regularly to direct the p...
View Answer

Correct Answer
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$V = 1/P, where V is the value of the do...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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