Question 1

Which group aids the Board of Governors of the Federal Reserve System in conducting monetary policy?

Accepted Answer

A)   U.S. Treasury
B)   U.S. Congress
C)   Federal Advisory Council
D)   Federal Open Market CommitteeE) A) and C)
F) A) and B)

Question 2

United States currency has value primarily because it:

Accepted Answer

A)   Is legal tender, is generally acceptable in exchange for goods or services, and is backed by the gold and silver of the Federal government
B)   Is generally acceptable in exchange for goods or services, is backed by the gold and silver of the Federal government, and facilitates trade
C)   Is relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services
D)   Facilitates trade, is legal tender, and permits the use of credit cards and near-moniesE) B) and D)
F) A) and B)

Question 3

The Federal Reserve System is an:

Accepted Answer

A)   Agency that is controlled by Congress
B)   Agency that is under the direction of the President
C)   Independent agency of government
D)   Agency ran by popularly-elected officialsE) None of the above
F) A) and B)

Question 4

Insurance companies are a major category of financial institutions.

Accepted Answer

A) True 
 B)False

Question 5

Money functions as a store of value if it allows you to:

Accepted Answer

A)   Measure the value of goods in a reliable way
B)   Make exchanges in a more efficient manner
C)   Delay purchases until you want the goods
D)   Increase your confidence in moneyE) None of the above
F) A) and C)

Question 6

The following programs were part of the Fed's "lender of last resort" efforts in response to the Financial Crisis of 2007-2008, except:

Accepted Answer

A)   TSLF (Term Securities Lending Facility) 
B)   TARP (Troubled Asset Relief Program) 
C)   CPFF (Commercial Paper Funding Facility) 
D)   TALF (Term Asset-Backed Securities Loan Facility) E) B) and D)
F) A) and B)

Question 7

The value of money in the United States is based on the stock of gold and silver held by the United States government.

Accepted Answer

A) True 
 B)False

Question 8

The paper money or currency in the U.S. essentially represents:

Accepted Answer

A)   A debt of commercial banks and savings institutions
B)   A debt of the U.S. Treasury
C)   An asset of the Federal government
D)   A debt of the Federal Reserve SystemE) A) and D)
F) B) and D)

Question 9

The Federal Reserve System is independent of Congress and the President, and does not have to follow orders from either Congress or the President.

Accepted Answer

A) True 
 B)False

Question 10

If the purchasing power of the dollar is falling, then it follows that:

Accepted Answer

A)   The price index is falling
B)   The price index is rising
C)   Nominal incomes are falling
D)   Interest rates are risingE) B) and C)
F) All of the above

Question 11

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

Accepted Answer

A)   1913
B)   1933
C)   1945
D)   1955E) C) and D)
F) B) and D)

Question 12

When the Fed acts as a "lender of last resort", like 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 collectionE) B) and C)
F) A) and C)

Question 13

Checkable deposits are money because they are:

Accepted Answer

A)   Legal tender
B)   Fiat money
C)   Acceptable as payment
D)   Token moneyE) C) and D)
F) None of the above

Question 14

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 growE) None of the above
F) A) and D)

Question 15

The causes of the skyrocketing mortgage default rates that triggered the financial crisis in 2007-2008 include the following, except:

Accepted Answer

A)   Mortgage lending became very lax
B)   Many people took on mortgages that they were simply incapable of repaying
C)   Housing price increased drastically
D)   Real estate values started declining after having risen for many yearsE) A) and D)
F) B) and C)

Question 16

One major advantage of credit cards used for transactions is that they:

Accepted Answer

A)   Offer discounts on most transactions
B)   Charge a lower interest rate than other means of payment
C)   Give consumers the lowest prices on products purchased
D)   Allow consumers to coordinate timing and payment for purchasesE) C) and D)
F) None of the above

Question 17

The Federal Reserve System is a bankers' bank, and thereby acts as a "lender of last resort" to banks.

Accepted Answer

A) True 
 B)False

Question 18

The so-called moral hazard problem refers to one's tendency to:

Accepted Answer

A)   Buy less of something if one does not have good information about it
B)   Avoid something that is considered risky or hazardous
C)   Get insurance against some possible hazard or danger
D)   Take on greater risk if one is at least partly insured against lossesE) A) and B)
F) All of the above

Question 19

Which of the following is NOT true about so-called mortgage-backed securities:

Accepted Answer

A)   Before the crisis, they were believed by many banks to be a way of reducing loan risks
B)   Before the crisis, they played a major role in broadening home ownership in America
C)   They were linkages that spread instability across many financial institutions
D)   Their use was strongly discouraged by the Federal governmentE) All of the above
F) B) and C)

Question 20

The Financial Crisis of 2007-2008 started in which sector of the economy?

Accepted Answer

A)   Foreign trade sector
B)   Consumer durables sector
C)   Dot.com and technology sector
D)   Real estate and housing sectorE) C) and D)
F) A) and C)

Exam 14: Money, Banking, and Financial Institutions

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

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The Financial Crisis of 2007-2008 started in which sector of the economy?

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The Federal Reserve System is independent of Congress and the President, and does not have to follow orders from either Congress or the President.

Correct AnswerverifiedShow Answer

One major advantage of credit cards used for transactions is that they:

Correct AnswerverifiedShow Answer

Which group aids the Board of Governors of the Federal Reserve System in conducting monetary policy?

Correct AnswerverifiedShow Answer

United States currency has value primarily because it:

Correct AnswerverifiedShow Answer

The value of money in the United States is based on the stock of gold and silver held by the United States government.

Correct AnswerverifiedShow Answer

Which of the following is NOT true about so-called mortgage-backed securities:

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Money functions as a store of value if it allows you to:

Correct AnswerverifiedShow Answer

The Federal Reserve System is a bankers' bank, and thereby acts as a "lender of last resort" to banks.

Correct AnswerverifiedShow Answer

Checkable deposits are money because they are:

Correct AnswerverifiedShow Answer

The paper money or currency in the U.S. essentially represents:

Correct AnswerverifiedShow Answer

If the purchasing power of the dollar is falling, then it follows that:

Correct AnswerverifiedShow Answer

The causes of the skyrocketing mortgage default rates that triggered the financial crisis in 2007-2008 include the following, except:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Insurance companies are a major category of financial institutions.

Correct AnswerverifiedShow Answer

The following programs were part of the Fed's "lender of last resort" efforts in response to the Financial Crisis of 2007-2008, except:

Correct AnswerverifiedShow Answer

The Federal Reserve System is an:

Correct AnswerverifiedShow Answer

The so-called moral hazard problem refers to one's tendency to:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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