Question 1

The M2 money supply includes

Accepted Answer

A)  stock certificates.
B)  currency in bank vaults.
C)  the cash value of life insurance policies.
D)  individual shares in money market mutual funds.E) C) and D)
F) A) and B)

Question 2

The use of a credit card is most similar to

Accepted Answer

A)  paying with a check.
B)  an ACH (automatic clearinghouse)  transaction.
C)  purchasing a certificate of deposit.
D)  obtaining a short-term loan.E) B) and D)
F) None of the above

Question 3

Firms whose central business is to offer security advice and buy and sell individual stocks and bonds for clients are known as

Accepted Answer

A)  thrifts.
B)  pension fund companies.
C)  securities firms.
D)  insurance companies.E) B) and C)
F) None of the above

Question 4

Currency and checkable deposits are

Accepted Answer

A)  assets of the Federal Reserve Banks or of financial institutions.
B)  redeemable for gold and silver from the Federal Reserve System.
C)  of intrinsic value, which determines the relative worth of money.
D)  the major components of money supply M1.E) All of the above
F) A) and C)

Question 5

An inflation rate of 8 percent would erode the purchasing power of the dollar by

Accepted Answer

A)  8.0 percent.
B)  7.4 percent.
C)  4.4 percent.
D)  12.5 percent.E) A) and B)
F) A) and C)

Question 6

Currency and coins held by banks are part of the M1 definition of money supply.

Accepted Answer

A) True 
 B)False

Question 7

Michelle transfers $4,000 from her savings account to her checking account.What effect is this change likely to have on M1 and M2?

Accepted Answer

A)  M1 decreases and M2 increases
B)  M1 increases and M2 decreases
C)  M1 increases and M2 stays the same
D)  M2 increases and M1 stays the sameE) B) and C)
F) A) and B)

Question 8

Insurance companies are a major category of financial institutions.

Accepted Answer

A) True 
 B)False

Question 9

A few years prior to the Financial Crisis of 2007-2008, many people were getting approved for mortgage loans even without proper documentation or credit checks.

Accepted Answer

A) True 
 B)False

Question 10

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 11

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

Question 12

The Federal Reserve System performs the following functions except

Accepted Answer

A)  issuing the paper currency in the economy.
B)  providing banking services to the general public.
C)  providing financial services to the Federal government.
D)  lending money to banks and thrifts.E) B) and C)
F) A) and B)

Question 13

If the price index rises from 100 to 120, the purchasing power value of the dollar

Accepted Answer

A)  may either rise or fall.
B)  will rise by one-sixth.
C)  will fall by one-sixth.
D)  will rise by 20 percent.E) B) and C)
F) A) and B)

Question 14

A checking account entry is money because it

Accepted Answer

A)  is ensured by the Federal Deposit Insurance Corporation.
B)  has been declared as such by the federal government.
C)  performs the functions of money.
D)  can be sold for currency.E) A) and C)
F) A) and D)

Question 15

Approximately how many commercial banks are now (2016)  operating in the United States?

Accepted Answer

A)  about 7,300
B)  about 6,000
C)  about 8,500
D)  about 6,800E) A) and B)
F) A) and C)

Question 16

The main function of the Federal Reserve System is to

Accepted Answer

A)  serve as the fiscal agent for the federal government.
B)  set reserve requirements of banks.
C)  clear checks from member banks.
D)  control the money supply.E) A) and B)
F) B) and C)

Question 17

The purchasing power of the dollar

Accepted Answer

A)  has been increasing in recent years because of economic growth.
B)  varies directly with the cost-of-living index.
C)  is inversely related to the level of aggregate demand.
D)  is the reciprocal of the price level.E) B) and D)
F) C) and D)

Question 18

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 soy 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) A) and C)
F) None of the above

Question 19

Which of the following is the basic economic policy function of the Federal Reserve Banks?

Accepted Answer

A)  holding the deposits or reserves of commercial banks
B)  acting as fiscal agents for the federal government
C)  controlling the supply of money
D)  collecting or clearing checks among commercial banksE) C) and D)
F) None of the above

Question 20

The so-called too-big-to-fail policy has two conflicting sides: on one hand there's the moral hazard problem that it creates, but on the other hand, the Fed must

Accepted Answer

A)  protect the stability of the banking system.
B)  promote competition among banks.
C)  ensure the employment of people in financial services.
D)  control the money supply.E) All of the above
F) A) and B)

Exam 34: Money, Banking, and Financial Institutions

The use of a credit card is most similar to

Correct AnswerverifiedShow Answer

Currency and coins held by banks are part of the M1 definition of money supply.

Correct AnswerverifiedShow Answer

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

Currency and checkable deposits are

Correct AnswerverifiedShow Answer

The purchasing power of the dollar

Correct AnswerverifiedShow Answer

An inflation rate of 8 percent would erode the purchasing power of the dollar by

Correct AnswerverifiedShow Answer

A checking account entry is money because it

Correct AnswerverifiedShow Answer

A few years prior to the Financial Crisis of 2007-2008, many people were getting approved for mortgage loans even without proper documentation or credit checks.

Correct AnswerverifiedShow Answer

Which of the following is the basic economic policy function of the Federal Reserve Banks?

Correct AnswerverifiedShow Answer

If the price index rises from 100 to 120, the purchasing power value of the dollar

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The M2 money supply includes

Correct AnswerverifiedShow Answer

Firms whose central business is to offer security advice and buy and sell individual stocks and bonds for clients are known as

Correct AnswerverifiedShow Answer

The Federal Reserve System performs the following functions except

Correct AnswerverifiedShow Answer

Approximately how many commercial banks are now (2016) operating in the United States?

Correct AnswerverifiedShow Answer

The so-called too-big-to-fail policy has two conflicting sides: on one hand there's the moral hazard problem that it creates, but on the other hand, the Fed must

Correct AnswerverifiedShow Answer

Michelle transfers $4,000 from her savings account to her checking account.What effect is this change likely to have on M1 and M2?

Correct AnswerverifiedShow Answer

The main function of the Federal Reserve System is to

Correct AnswerverifiedShow Answer

Insurance companies are a major category of financial institutions.

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

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