Question 1

The members of the Board of Governors of the Fed are

Accepted Answer

A)  elected by the member banks
B)  chosen by the state governors
C)  elected for seven year terms
D)  all replaced after each Presidential election
E)  selected by the President with the approval of the Senate

Question 2

The reason that the Federal Reserve System has not been more effective is that it lacks the power to set legal reserve requirements for member banks.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following countries has eliminated its smallest coin?

Accepted Answer

A)  The Netherlands
B)  Hong Kong
C)  Finland
D)  Australia
E)  All of the answers are correct

Question 4

Money market mutual funds

Accepted Answer

A)  were originally introduced by the Federal Reserve Bank of New York
B)  when they were introduced, constituted serious competition to banks and thrifts for the deposits of savers
C)  were not originally offered by commercial banks and still are not offered by them
D)  represent a pooling of cash assets from many countries, like dollars, francs, and pesos
E)  are not able to offer their customers check writing privileges

Question 5

Specialization of labor means that

Accepted Answer

A)  production requires a special kind of labor
B)  the overall skill level of labor is increasing
C)  individuals produce goods other than those they want to consume
D)  individuals achieve self-sufficiency in production
E)  exchange within the economy consists of trading in services

Question 6

To say that money serves as a store of value is to say that money is a useful way to store wealth for future use.

Accepted Answer

A) True 
 B)False

Question 7

A bank holding company is

Accepted Answer

A)  a conglomerate that owns a bank to service the other businesses it owns
B)  a loose federation of private banks that hold assets in common
C)  a corporation that owns one or more banks
D)  a bank that is owned by the depositors
E)  a subsidiary of a major corporation

Question 8

All of the following are reasons that cigarettes came to serve as money in WWII prisoner of war camps except one. Which is the exception?

Accepted Answer

A)  cigarettes are of uniform quality
B)  cigaretttes were in limited supply
C)  cigarettes are reasonably durable
D)  cigarettes could not be counterfeited
E)  cigarettes could individually support small transactions and in packs they could support large transactions

Question 9

Barter may be the only alternative

Accepted Answer

A)  only if the supply of money dries up
B)  if the supply of money dries up or if the price system is not allowed to function properly
C)  only if the price system is not allowed to function properly
D)  if hyperinflation sets in
E)  if fiat money is discontinued

Question 10

The chairman of the Fed is appointed by the president.

Accepted Answer

A) True 
 B)False

Question 11

The banking crisis of the 1980s was due, in part, to all of the following except one. Which is the exception?

Accepted Answer

A)  the rising interest rates of the 1970s and early 1980s
B)  the existence of deposit insurance
C)  the deregulation of deposit rates that allowed unsafe banks to grow
D)  the deregulation of lending practices
E)  the highly concentrated U.S. banking industry, where big banks had branches in nearly every state

Question 12

The Federal Reserve banks could probably have prevented many of the bank failures in the early 1930s by

Accepted Answer

A)  raising the reserve requirement of the commercial banks
B)  lending money to the commercial banks
C)  improving the system whereby checks are cleared
D)  helping to create a commission of experts to engage in a prolonged study of the problem
E)  selling large amounts of government bonds

Question 13

One purpose of interest-rate ceilings was to

Accepted Answer

A)  establish a ceiling on bank profits
B)  establish a floor on bank profits
C)  encourage competition in other areas
D)  eliminate the need for the FDIC
E)  reduce the chance of bank failures

Question 14

The deregulation of U.S. banking in the 1980s led to

Accepted Answer

A)  increased profits at all banks
B)  no change in banks' conduct
C)  more bank failures than in the 1930s
D)  many bank failures as banks began to hold riskier assets
E)  the end of FDIC insurance for banks that held risky assets

Question 15

Before the specialization

Accepted Answer

A)  families were largely self-sufficient
B)  families produced much more than they could each consume
C)  there was a great need for exchange between families
D)  families consumed much more than they could each produce
E)  None of the answers is correct

Question 16

The emergence of the subprime mortgage market following the recession of 2001 made it increasingly difficult for low income individuals to obtain a mortgage.

Accepted Answer

A) True 
 B)False

Question 17

The discount rate is the interest rate that

Accepted Answer

A)  banks charge on large loans
B)  banks charge on loans to other banks
C)  the Fed charges on loans to branches of the U.S. government
D)  the Fed charges on loans to depository institutions
E)  the Fed charges on loans to the public

Question 18

U.S. banks have grown primarily through

Accepted Answer

A)  America's longstanding preference for big banks
B)  surviving banks buying up bankrupt banks
C)  excellent customer service
D)  mergers and acquisitions
E)  All of the answers are correct

Question 19

Seigniorage is

Accepted Answer

A)  a retirement home for senior citizens
B)  revenue earned from coining money
C)  a fine paid by counterfeiters
D)  the profits made by illegally "clipping" or "shaving" bits of precious metal from coins
E)  the oldest known form of commodity money

Question 20

Which of following is not an important characteristic of money?

Accepted Answer

A)  general acceptability
B)  has commodity value
C)  divisibility
D)  has stable value
E)  none of the above

Exam 14: Money and the Financial System

The discount rate is the interest rate that

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The Federal Reserve banks could probably have prevented many of the bank failures in the early 1930s by

Correct AnswerverifiedShow Answer

The emergence of the subprime mortgage market following the recession of 2001 made it increasingly difficult for low income individuals to obtain a mortgage.

Correct AnswerverifiedShow Answer

Which of the following countries has eliminated its smallest coin?

Correct AnswerverifiedShow Answer

One purpose of interest-rate ceilings was to

Correct AnswerverifiedShow Answer

The reason that the Federal Reserve System has not been more effective is that it lacks the power to set legal reserve requirements for member banks.

Correct AnswerverifiedShow Answer

Barter may be the only alternative

Correct AnswerverifiedShow Answer

The deregulation of U.S. banking in the 1980s led to

Correct AnswerverifiedShow Answer

Which of following is not an important characteristic of money?

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A bank holding company is

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The chairman of the Fed is appointed by the president.

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The banking crisis of the 1980s was due, in part, to all of the following except one. Which is the exception?

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Specialization of labor means that

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Before the specialization

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Money market mutual funds

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Seigniorage is

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U.S. banks have grown primarily through

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To say that money serves as a store of value is to say that money is a useful way to store wealth for future use.

Correct AnswerverifiedShow Answer

The members of the Board of Governors of the Fed are

Correct AnswerverifiedShow Answer

All of the following are reasons that cigarettes came to serve as money in WWII prisoner of war camps except one. Which is the exception?

Correct AnswerverifiedShow Answer

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