Econ

The chairperson of the Federal Reserve Board is selected by the

Answer: a a. U.S. president and confirmed by the Senate. b.Supreme Court and confirmed by the Senate. c.U.S. president and confirmed by the Supreme Court. d.Chairman of the Banking Committee and confirmed by the Senate.

The purchasing power of money is

Answer: a a.inversely related to the price level. b.naturally related to the price level. c.directly related to the price level. d.positively related to the price level.

Who in the U.S. is responsible for maintaining money's purchasing power?

Answer: c a.The Federal Open Market Committee of the Federal Reserve System b.Congress c.The Board of Governors of the Federal Reserve System d.The Senate

The value of money is determined by

Answer: d a.the cache of gold owned by the Treasury. b.the foreign exchange rate. c.the Federal Reserve. d.people's willingness to accept it in exchange for goods and services.

What is the largest component of M1?

Currency

Which of the components of M1 is legal tender?

Currency

What are the components of the M1 money supply?

Currency in circulation and checkable deposits

An important reason why members of the Federal Reserve's Board of Governors are each given extremely long, 14-year terms is to:

Insulate members from political pressures that could result in inflation.

Which of the following are included in the functions of the Federal Reserve System?

Issuing Federal Reserve Notes, providing for check collection, and supervising the operation of banks

The three functions of money are:

Medium of exchange, unit of account, and store of value.

City Bank is considering making a $50 million loan to a company named SheetOil that wants to commercialize a process for turning used blankets, pillowcases, and sheets into oil. This company's chances for success are dubious, but City Bank makes the loan anyway because it believes that the government will bail it out if SheetOil goes bankrupt and cannot repay the loan. City Bank's decision to make the loan has been affected by:

Moral hazard.

What near-monies are included in M2 money supply?

Noncheckable savings deposits, money market deposit accounts, small time deposits, and money market mutual fund balances

Which group votes on the open-market operations that are used to control the U.S. money supply and interest rates?

The Federal Open Market Committee (FOMC).

TARP is the

Troubled Asset Relief Program funded with general tax revenue and the issuance of government debt.

The Federal Reserve Board of Governors

a. coordinates policies for the 12 Federal Reserve Banks. b. is the largest bank in U.S. c. is made up of 5 members. d. is replaced every 2 years.

Subprime mortgage loans were one of the factors that exacerbated the financial crisis of 2007-2008 because they resulted in

an increase in demand for housing and a rapid increase in home prices that was unsustainable.

Consider the following statement: "When the price of everything goes up, it is not because everything is worth more but because the currency is worth less." This statement acknowledges that

if the price of everything rises, it means that the currency has less purchasing power.

Other than its main role of controlling the supply of money, the functions of the Federal Reserve include

issuing Federal Reserve Notes, providing for check collection, and supervising the operation of banks.

American International Group (AIG) exacerbated the financial crises of 2007-2008 by

issuing billions of dollars of collateralized default swaps that had embedded mortgage-loan risk.

The financial crisis of 2007-2008 was exacerbated by subprime mortgage loans. These loans were made to borrowers

more likely to default on their loans.

Consider the following statement: "Money is whatever society says it is." This statement acknowledges that money

must be an acceptable medium for exchange to occur.

The face value of a coin is greater than its intrinsic value because

otherwise people would sell it for its intrinsic value.

Rapid inflation can undermine money's ability to perform its functions. For example, in runaway inflation

people revert to barter because money fails as a medium of exchange.

Mortgage backed securities were one of the factors that exacerbated the financial crisis of 2007-2008 because they

reduced the risk exposure, or cost, that banks faced after issuing these subprime loans, and encouraged this type of lending.

When economists say that the Federal Reserve Banks are 'central' banks, this means

the policies are coordinated by the Federal Reserve Board of Governors.

When economists say that the Federal Reserve Banks are quasi-public banks, this means

they are a blend of private ownership and public control.

When economists say that the Federal Reserve Banks are 'bankers' banks, this means

they perform the same functions for banks as banks perform for the public.

The Federal Reserve serves as "lender of last resort." In the Financial Crisis of 2007-2008 this meant that they

used creative facilities to lend to financial institutions in the emergency.

Consider the following statement: "The invention of money is one of the great achievements of humankind, for without it, the enrichment that comes from broadening trade would have been impossible." This statement acknowledges that

without money, trade must occur through barter, which is inefficient and cumbersome.

Consider the following statement: "Any central bank can create money; the trick is to create enough, but not too much, of it." This statement acknowledges that a central bank

can create too much money, lowering its value and causing inflation.

The major categories of firms that make up the U.S. financial services industry include

commercial banks, thrifts, insurance companies, and securities related firms.

Economists nearly uniformly support an independent Fed rather than one beholden directly to either the President or Congress because

this independence allows the Fed to more effectively control the money supply and maintain price stability.

What are the three basic functions of money?

A medium of exchange, a unit of account, and store of value

James borrows $300,000 for a home from Bank A. Bank A resells the right to collect on that loan to Bank B. Bank B securitizes that loan with hundreds of others and sells the resulting security to a state pension plan, which at the same time purchases an insurance policy from AIG that will pay off if James and the other people whose mortgages are in the security can't pay off their mortgage loans. Suppose that James and all the other people can't pay off their mortgages. Which financial entity is legally obligated to suffer the loss?

AIG.

Which of the following is not a function of the Fed?

Advising Congress on fiscal policy.

The Federal Open Market Committee (FOMC) includes

Answer: d a. the Board of Governors members and 5 of the 12 presidents of the Federal Reserve Banks, of which, the Chairman of the Federal Reserve Board of Governors has a permanent voting seat. b. the Chairman of the Federal Reserve Board of Governors and 7 of the 12 presidents of the Federal Reserve Banks, of which, the president of the New York Fed has a permanent voting seat. c. the Board of Governors members, 7 of the 12 presidents of the Federal Reserve Banks, and the president of the United States. d. the Board of Governors members and 5 of the 12 presidents of the Federal Reserve Banks, of which, the president of the New York Fed has a permanent voting seat.

The Federal Open Market Committee (FOMC)

Answer:d a. develops monetary policy and sells government securities. b. votes on the Fed's monetary policy and purchases government securities. c. develops monetary policy and directs the purchase or sale of government securities. d. votes on the Fed's monetary policy and directs the purchase or sale of government securities.

Which of the following statements is true?

Anwser: a a. There is no concrete backing to the money supply in the United States. b. The gold standard applies to a small fraction of the money supply. c. The money supply is backed by Treasury notes. d. Half the money supply is backed by gold.

Between 1980 and 2007, the bank and thrift share of the financial services market

declined substantially.

Compared to a decade ago, there are

fewer bank firms.

Government and Federal Reserve emergency loans create moral hazard because there is a tendency

for financial services firms to take on greater risks because they assume they are at least partially insured against losses.

The categories of financial firms have become more blurred as these firms are trying to

retain their market share.