Econ chapter 14

The Federal Reserve System was established by the Federal Reserve Act of: A. 1913 B. 1933 C. 1945 D. 1955

A. 1913

How many members can serve on the Board of Governors of the Federal Reserve System? A. 7 B. 9 C. 12 D. 14

A. 7

What function is money serving when you deposit money in a savings account? A. A store of value B. A unit of account C. A checkable deposit D. A medium of exchange

A. A store of value

Which of the following would be considered to be the most liquid? A. Checkable deposits B. Small time deposits C. Money market mutual funds D. Savings deposits

A. Checkable deposits

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. Medium of exchange

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. Providing banking services to the general public

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

B. The acceptability of it as a medium of exchange

The "bail-out" money that went to giant financial institutions like Citibank and Goldman Sachs, along with General Motors and Chrysler during the Financial Crisis and the Great Recession, came from the: A. American Recovery and Reinvestment Act B. Troubled Assets Relief Program C. Primary Dealer Credit Facility D. Term Securities Lending Facility

B. Troubled Assets Relief Program

When a banker records how many dollars each of his borrowers owes the bank, money is serving as a: A. Store of value B. Unit of account C. Medium of exchange D. Legal tender

B. Unit of account

When a consumer wants to compare the price of one product with another, money is primarily functioning as a: A. Store of value B. Unit of account C. Checkable deposit D. Medium of exchange

B. Unit of account

Given the fact that "too big to fail" could translate into "too big to jail", many economists are calling for a return to the separation of high-risk from the low-risk activities in the financial sector. This separation is embodied in the Wall Street Reform and Consumer Protection Act of 2010 in the so-called: A. Greenspan Policy B. Volker Rule C. Bernanke Policy D. Obama Rule

B. Volker Rule

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

A. Commercial banks

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. Federal Reserve notes

Which definition(s) of the money supply include(s) only items which are directly and immediately usable as a medium of exchange? A. M1 B. M2 C. Neither M1 nor M2 D. M1 and M2

A. M1

The use of a debit card is most similar to: A. Paying with a check B. Using a stored-value card C. Using currency D. Obtaining a short-term loan

A. Paying with a check

The consolidation in the financial industry into fewer and larger firms: 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

A. Progressed further in the Financial Crisis of 2007-2008

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

A. Protect it from political pressure

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 in the other hand the Fed must: 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

A. Protect the stability of the banking system

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. The U.S. government's ability to keep the value of money relatively stable

In 2012 and 2013, the U.S. Attorney General's office illustrated, in several major cases, a bias in favor of the goal of maintaining the stability of the financial system over: A. The prosecution of financial crimes B. Protecting the survival of large financial firms C. Promoting global competition in finance D. Privatizing the financial sector

A. The prosecution of financial crimes

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. Central bank

Which of the following is not true about the use of a credit card? A. It is a means of deferring payment for a short period of time B. It allows people to "economize" on the use of money C. Credit-card balances are part of M2, but not part of M1 D. A credit card transaction is not the same as a debit card transaction

C. Credit-card balances are part of M2, but not part of M1

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

C. Delay purchases until you want the goods

One major advantage of money serving as a medium of exchange is that it allows society to: A. Transfer purchasing power from the present to the future B. Measure the relative worth of products C. Escape the complications of barter D. Use credit cards instead of currency

C. Escape the complications of barter

The basic requirement for an item to function as money is that it be: A. Backed by precious metals—gold or silver B. Authorized as legal tender by the central government C. Generally accepted as a medium of exchange D. Some form of debt or credit

C. Generally accepted as a medium of exchange

Which of the following is NOT true about subprime mortgage loans: 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 were considered high-risk loans because the borrowers had poor credit ratings

C. They had always been discouraged by the government, and even banned in some cases

Which of the following institutions does not provide checkable-deposit services to the general public? A. Commercial banks B. Savings and loan associations C. U.S. Treasury D. Credit unions

C. U.S. Treasury

Checkable deposits are included in: A. M1 but not in M2 B. M2 but not in M1 C. both M1 and M2 D. neither M1 nor M2

C. both M1 and M2

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. Checkable deposits and currency in circulation

The main function of the Federal Reserve System is to: 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

D. Control the money supply

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. Control the supply of money in the economy

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

D. Member banks

People can generally get the following items at their commercial banks, except: A. Money market deposit accounts B. Time deposits C. Certificates of deposit D. Money market mutual funds

D. Money market mutual funds

The use of a credit card is most similar to: A. Paying with a check B. An ACH (automatic clearinghouse) transaction C. Purchasing a certificate of deposit D. Obtaining a short-term loan

D. Obtaining a short-term loan

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. Price index is rising and the purchasing power of money is falling

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

A. Unit of account, store of value, and medium of exchange

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. Commercial banks and thrift institutions

The Bureau of Consumer Financial Protection was created in 2010 to become part of the: A. U.S. Treasury Department B. Federal Reserve System C. Department of Commerce D. Office of the President

B. Federal Reserve System

The government bail-out of large institutions creates the problem of moral hazard, which means that these large firms will: A. Not be able to pay back the bail-out money B. Have an incentive to make highly risky investments C. Now have to play it safer to reduce their risks D. Be limited in terms of the securities and services that they get involved in

B. Have an incentive to make highly risky investments

The Federal Reserve System is divided into: A. 5 districts B. 7 districts C. 12 districts D. 15 districtsterm-36

C. 12 districts

The Glass-Steagall Act of 1933 required: A. The government to bail out failing large banks B. The establishment of "one-stop shopping" for financial services C. A separation of commercial banking from the trading of stocks D. Government regulation to pursue a "too big to fail" policy

C. A separation of commercial banking from the trading of stocks

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

C. Acceptable as payment

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. Appointed by the President to staggered 14-year terms

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. Being the bankers' bank

During the Financial Crisis of 2007-2008, Goldman Sachs, Morgan Stanley, and other financial firms with heavy exposure to the mortgage-related problems rushed to become bank holding companies in order to: A. Follow the order of the U.S. Treasury B. Obtain bail-out money from Congress C. Get massive loans from the Fed D. Acquire funds from the general public

C. Get massive loans from the Fed

The causes of the skyrocketing mortgage default rates that triggered the financial crisis in 2007-2008 include the following, except: A. Mortgage lending became very lax B. Many people took on mortgages that they were simply incapable of repaying C. Housing prices increased drastically D. Real estate values started declining after having risen for many years

C. Housing prices increased drastically

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. Is relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services

Which of the following financial institutions pool deposits of customers and use the money to buy a portfolio of stocks or bonds or both? A. Thrifts B. Brokerage firms C. Mutual funds D. Investment banks

C. Mutual funds

The so-called near-monies have the following characteristics, except: A. Highly liquid assets B. Not a means of payment C. Part of money supply M1 D. Readily converted into cash

C. Part of money supply M1

Which of the following items are included in money supply M2 but not M1? A. Federal Reserve notes B. Coins C. Savings deposits D. Checkable deposits

C. Savings deposits

An asset's liquidity refers to its ability to be: A. Bought and stored B. Increasing in value over time C. Used and enjoyed D. A means of payment

D. A means of payment

What function is money serving when you use it when you go shopping? A. A store of value B. A unit of account C. A medium of deferred payment D. A medium of exchange

D. A medium of exchange

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

D. Allow consumers to coordinate timing and payment for purchases

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. Board of Governors and the 12 Federal Reserve Banks

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 Fedterm-35eral government D. Setting the Fed's monetary policy and directing the purchase and sale of government securities

D. Setting the Fed's monetary policy and directing the purchase and sale of government securities

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. The major components of money supply M1

Which of the following is not true about the Federal Reserve banks? A. They serve as bankers' banks B. They are privately owned but government-controlled C. Unlike other banks, they are not motivated by profits D. They compete with commercial banks in their basic functions

D. They compete with commercial banks in their basic functions