Question 1

As of February 2016, more than half of the money supply (M1)  was in the form of

Accepted Answer

A)  currency.
B)  checkable deposits.
C)  gold coins and bars.
D)  savings deposits.

Question 2

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

Accepted Answer

A) True 
 B)False  True

Question 3

The Federal Open Market Committee (FOMC) regulates markets and enforces antitrust laws to keep markets open and competitive.

Accepted Answer

A) True 
 B)False

Question 4

The M1 money supply is composed of

Accepted Answer

A)  all coins and paper money held by the general public and the banks.
B)  bank deposits of households and business firms.
C)  bank deposits and mutual funds.
D)  checkable deposits and currency in circulation. D

Question 5

The reason for the Fed being set up as an independent agency of government is to

Accepted Answer

A)  protect it from political pressure.
B)  allow it to earn profits like private firms.
C)  make it be managed and controlled by member banks.
D)  let it be able to compete with other financial institutions.

Question 6

When a bank's loans are written off, then the bank's

Accepted Answer

A)  ability to make more new loans increases.
B)  ability to make new loans is restricted.
C)  assets will grow, while its liabilities stay the same.
D)  assets stay the same, while its liabilities grow.

Question 7

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 2007-2008.

Question 8

Which of the following is not a provision of the Wall Street Reform & Consumer Protection Act of 2010?

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.

Question 9

How many members can serve on the Board of Governors of the Federal Reserve System?

Accepted Answer

A)  7
B)  9
C)  12
D)  14

Question 10

The destabilizing effects of defaulting mortgages quickly spread throughout the financial system because those mortgages were involved in widespread

Accepted Answer

A)  diversification.
B)  securitization.
C)  multiplier effects.
D)  real-balance effects.

Question 11

Time deposits of $100,000 or more are

Accepted Answer

A)  a component of M1.
B)  a component of M2 but not of M1.
C)  a component of M1 but not of M2.
D)  not a component of M1 or M2.

Question 12

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 in the Fedâ€™s lender-of-last-resort activities
C)  check-clearing and deposit-transfer services provided to banks
D)  providing banking services to foreign governments

Question 13

When economists say that money serves as a medium of exchange, they mean that it is

Accepted Answer

A)  a way to keep wealth in a readily spendable form for future use.
B)  a means of payment.
C)  a monetary unit for measuring and comparing the relative values of goods.
D)  declared as legal tender by the government.

Question 14

An important routine function of the Federal Reserve Bank is to

Accepted Answer

A)  supervise the liquidation of the assets of bankrupt state banks.
B)  help large commercial banks develop correspondent relationships with smaller commercial banks.
C)  advise commercial banks as to the most profitable ways of reinvesting profits.
D)  provide facilities by which commercial banks and thrift institutions may collect checks. D

Question 15

The M2 money supply may be larger or smaller than the M1 money supply, depending on the size of small-denominated time deposit balances and money market mutual fund balances held by individuals.

Accepted Answer

A) True 
 B)False

Question 16

The paper money used in the United States is

Accepted Answer

A)  National Bank notes.
B)  Treasury notes.
C)  United States notes.
D)  Federal Reserve notes.

Question 17

The Federal Reserve System is the institution that issues the U.S.paper currency or dollar bills.

Accepted Answer

A) True 
 B)False

Question 18

When there is inflation in the economy, it implies that the

Accepted Answer

A)  price index is rising and the purchasing power of money is also rising.
B)  price index is falling and the purchasing power of money is also falling.
C)  price index is falling and the purchasing power of money is rising.
D)  price index is rising and the purchasing power of money is falling.

Question 19

Assuming no other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, the

Accepted Answer

A)  M1 money supply will decline.
B)  M1 money supply will not change.
C)  M2 money supply will decline.
D)  M2 money supply will increase.

Question 20

The programs enacted to bail out the financial system from crisis in 2007 and 2008 helped alleviate the moral hazard problem in the financial industry.

Accepted Answer

A) True 
 B)False

Exam 34: Money, Banking, and Financial Institutions

As of February 2016, more than half of the money supply (M1) was in the form of

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedTrue

The Federal Open Market Committee (FOMC) regulates markets and enforces antitrust laws to keep markets open and competitive.

Correct AnswerverifiedShow Answer

The M1 money supply is composed of

Correct AnswerverifiedD

The reason for the Fed being set up as an independent agency of government is to

Correct AnswerverifiedShow Answer

When a bank's loans are written off, then the bank's

Correct AnswerverifiedShow Answer

The consolidation in the financial industry into fewer and larger firms

Correct AnswerverifiedShow Answer

Which of the following is not a provision of the Wall Street Reform & Consumer Protection Act of 2010?

Correct AnswerverifiedShow Answer

How many members can serve on the Board of Governors of the Federal Reserve System?

Correct AnswerverifiedShow Answer

The destabilizing effects of defaulting mortgages quickly spread throughout the financial system because those mortgages were involved in widespread

Correct AnswerverifiedShow Answer

Time deposits of $100,000 or more are

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When economists say that money serves as a medium of exchange, they mean that it is

Correct AnswerverifiedShow Answer

An important routine function of the Federal Reserve Bank is to

Correct AnswerverifiedD

The M2 money supply may be larger or smaller than the M1 money supply, depending on the size of small-denominated time deposit balances and money market mutual fund balances held by individuals.

Correct AnswerverifiedShow Answer

The paper money used in the United States is

Correct AnswerverifiedShow Answer

The Federal Reserve System is the institution that issues the U.S.paper currency or dollar bills.

Correct AnswerverifiedShow Answer

When there is inflation in the economy, it implies that the

Correct AnswerverifiedShow Answer

Assuming no other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, the

Correct AnswerverifiedShow Answer

The programs enacted to bail out the financial system from crisis in 2007 and 2008 helped alleviate the moral hazard problem in the financial industry.

Correct AnswerverifiedShow Answer

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True

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D

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D

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