Chapter 31

12. United States currency has value primarily because it: 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-monies

C

3. The currency or money of the United States, like those of other countries, is: A. Commodity money B. Intrinsic money C. Token money D. Deposit money

C

11. Which of the following "backs" the value of money in the United States? A. The gold stored in the Federal Reserve Bank of New York B. The acceptability of it as a medium of exchange C. The willingness of foreign government to hold U.S. dollars D. The size of the budget surplus in the U.S. government

D

15. When there is inflation in the economy, it implies that the: 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

D

13. What "backs" the money supply of the U.S.? A. The U.S. government's ability to keep the value of money relatively stable B. The amount of gold the U.S. government has on deposit at its banks C. The fact that currency is issued by the Federal Reserve System D. The fact that the intrinsic value of coins in circulation is greater than their face value

A

31. Securitization, the process of forming new securities by bundling or slicing up groups of securities like mortgages and bonds, is: A. A way of reducing risk though diversification B. Well-understood by financial analysts and managers who engaged in it C. Considered shady by legitimate financial institutions D. Still only a minor portion of the modern financial system

A

34. "Thrifts" refer to the following institutions, except: A. Commercial banks B. Credit unions C. Mutual savings banks D. Savings and loan associations

A

5. Checkable deposits are: A. Debts of commercial banks and savings institutions B. Debts of the Federal government and government agencies C. Assets of the Federal government and government agencies D. Assets of commercial banks and savings institutions

A

7. The paper currencies of the U.S. are also called: A. Federal Reserve notes B. Treasury Bills C. U.S. Government notes D. Treasury bonds

A

18. To keep high inflation from eroding the value of money, monetary authorities in the United States: A. Create token money that is less than its intrinsic value B. Make paper money legal tender for the payment of debt C. Establish insurance on checkable deposit accounts D. Control the supply of money in the economy

D

19. The Federal Reserve Banks are owned by the: A. Federal government B. Board of Governors C. United States Treasury D. Member banks

D

20. The Federal Reserve System consists of which of the following? A. Federal Open Market Committee and Office of Thrift Supervision B. Federal Deposit Insurance Corporation and Controller of the Currency C. U.S. Treasury Department and Bureau of Engraving and Printing D. Board of Governors and the 12 Federal Reserve Banks

D

21. How long is the term of office for members appointed to serve on the Board of Governors of the Federal Reserve System? A. 2 years B. 4 years C. 7 years D. 14 years

D

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

D

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

D

6. Currency and checkable deposits are: 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

D

8. The M1 money supply is composed of: 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

9. Joe Rogers deposits $200 in currency in his checking account at a bank. This deposit is treated as: A. A subtraction of $200 from the money supply because the $200 in currency is no longer in circulation B. An addition of $200 to the money supply because of the creation of a checkable deposit of $200 C. An addition of $200 to the money supply because the bank holds $200 in currency and the checking account has been increased by $200 D. No change in the money supply because the $200 in currency has been converted to a $200 increase in checkable deposits

D

1. The functions of money are to serve as a: A. Resource allocator, method for accounting, and means of income distribution B. Unit of account, store of value, and medium of exchange C. Determinant of consumption, investment, and government spending D. Factor of production, exchange, and aggregate supply

B

16. If the value of the dollar is falling, then it follows that: A. The price index is falling B. The price index is rising C. Nominal incomes are falling D. Interest rates are rising

B

2. Money eliminates the need for a coincidence of wants in trading primarily through its role as a: A. Unit of account B. Medium of exchange C. Store of value D. Medium of deferred payment

B

25. Holding the money deposits of businesses and households and making loans to the public are the basic functions of: A. District banks of the Federal Reserve System B. Commercial banks and thrift institutions C. The Open Market Committee and the Board of Governors D. The Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance Corporation

B

26. Which of the following is the most important function of the Federal Reserve System? A. Setting reserve requirements B. Controlling the money supply C. Lending money to banks and thrifts D. Acting as the fiscal agent for the U.S. government

B

28. The Federal Reserve System performs the following functions, except: 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

B

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

B

4. Paper money or currency in the U.S. is essentially: A. A debt of commercial banks and savings institutions B. A debt of a government agency C. An asset of the Federal government D. An asset of commercial banks and savings institutions

B

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

C

14. Checkable deposits are money because they are: A. Legal tender B. Fiat money C. Acceptable as payment D. Token money

C

17. The consumer price index was 100 in one year and 330 ten years later. The purchasing power of the dollar over those ten years fell by: A. 330 percent B. 230 percent C. 70 percent D. 30 percent

C

22. The Federal Reserve System of the U.S. is the country's: A. Financial adviser B. Comptroller or Accountant C. Central bank D. Deposit insurance provider

C

23. Members of the Federal Reserve Board of Governors are: A. Appointed by Congress to staggered 14-year terms B. Selected by the Federal Open Market Committee for 4-year terms C. Appointed by the President to staggered 14-year terms D. Selected by each of the Federal Reserve banks for 4-year terms

C

27. 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: A. Controlling the money supply B. Setting the reserve requirements C. Being the bankers' bank D. Providing for check clearing and collection

C

29. The Federal Reserve System is an: 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 officials

C

30. Subprime mortgage loans are all of the following, except: A. They played a central role in the financial crisis of 2007-2008 B. They were encouraged by the Federal government for many years before the financial crisis C. They had always been discouraged by the government, and even banned in some cases D. They are considered high-risk loans because the borrowers had poor credit ratings

C