Question 1

The use of a debit card is most similar to

Accepted Answer

A)  paying with a check.
B)  using a stored-value card.
C)  using currency.
D)  obtaining a short-term loan.E) A) and D)
F) All of the above

Question 2

Money supply M1 does not include the currency held by

Accepted Answer

A)  households in their wallets or purses.
B)  business firms.
C)  commercial banks.
D)  state and local governments.E) B) and D)
F) C) and D)

Question 3

If you place a part of your summer earnings in a savings account, you are using money primarily as a

Accepted Answer

A)  medium of exchange.
B)  store of value.
C)  unit of account.
D)  standard of value.E) A) and B)
F) None of the above

Question 4

Which of the following is not part of the M2 money supply?

Accepted Answer

A)  money market mutual fund balances
B)  money market deposit accounts
C)  currency
D)  large-denominated time depositsE) A) and B)
F) A) and C)

Question 5

Which of the following financial institutions declared bankruptcy as a result of the financial crisis of 2007 and 2008?

Accepted Answer

A)  Merrill Lynch
B)  Lehman Brothers
C)  Goldman Sachs
D)  AIGE) A) and B)
F) A) and C)

Question 6

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

Accepted Answer

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.E) None of the above
F) A) and C)

Question 7

Money functions as

Accepted Answer

A)  a store of value.
B)  a unit of account.
C)  a medium of exchange.
D)  a store of value, a unit of account, and a medium of exchange.E) A) and B)
F) A) and C)

Question 8

People can generally get the following items at their commercial banks, except

Accepted Answer

A)  money market deposit accounts.
B)  time deposits.
C)  certificates of deposit.
D)  money market mutual funds.E) A) and B)
F) A) and C)

Question 9

Money performs its function as a store of value very well, because it protects one against the erosion of purchasing power from inflation.

Accepted Answer

A) True 
 B)False

Question 10

The Federal Reserve System consists of which of the following?

Accepted Answer

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

Question 11

Wells Fargo, J.P.Morgan Chase, and Citibank are all primarily

Accepted Answer

A)  commercial banks.
B)  mutual fund companies.
C)  insurance companies.
D)  securities firms.E) A) and D)
F) B) and C)

Question 12

Currency held in bank vaults The M1 definition of money includes item(s)

Accepted Answer

A)  6 only.
B)  3, 4, and 6.
C)  3 and 6.
D)  3, 6, and 10.E) B) and D)
F) None of the above

Question 13

Near monies

Accepted Answer

A)  include all financial and real assets that can be easily converted into currency.
B)  are certain highly liquid financial assets that do not function directly as a medium of exchange but can be readily converted into M1.
C)  are excluded from M2 because they are highly liquid.
D)  are defined as monetary balances that are immediately available, at zero cost, for household and business transactions.E) A) and B)
F) C) and D)

Question 14

Economic studies conducted in industrially advanced countries suggest there is

Accepted Answer

A)  a positive relationship between the degree of independence of the central bank and the size of the average annual rate of inflation.
B)  an inverse relationship between the degree of independence of the central bank and the size of the average annual rate of inflation.
C)  no relationship between the degree of independence of the central bank and the size of the average annual rate of inflation.
D)  a positive relationship between the degree of independence of the central bank and the size of the central bank.E) None of the above
F) A) and D)

Question 15

The basic requirement for an item to function as money is that it be

Accepted Answer

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.E) A) and D)
F) B) and C)

Question 16

(Consider This) Credit cards are defined as money because they facilitate transactions.

Accepted Answer

A) True 
 B)False

Question 17

During a financial crisis, the Fed and other central banks often adopt an "extend and pretend" policy in their emergency lending activities.Which of the following is not a consequence of this policy?

Accepted Answer

A)  It limits the potential for insolvent banks to drag down the solvent ones as well.
B)  It enhances the moral-hazard problem going forward; banks will be more likely to engage in risky behavior.
C)  It allows many poorly managed firms that have become insolvent due to making bad investments to avoid well-deserved bankruptcies.
D)  It increases the chances of the Fed itself (or another central bank)  being dragged into its own bankruptcy crisis.E) B) and C)
F) All of the above

Question 18

Which of the following is not true about so-called mortgage-backed securities?

Accepted Answer

A)  Before the crisis, they were believed by many banks to be a way of reducing loan risks.
B)  Before the crisis, they played a major role in broadening home ownership in America.
C)  They were links that spread instability across many financial institutions.
D)  Their use was strongly discouraged by the Federal government.E) B) and D)
F) A) and D)

Question 19

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

Accepted Answer

A)  follow the order of the U.S.Treasury.
B)  obtain bailout money from Congress.
C)  get massive loans from the Fed.
D)  acquire funds from the general public.E) All of the above
F) A) and C)

Question 20

TARP and other lender-of-last-resort programs implemented by the Fed in response to the financial crisis of 2007 and 2008

Accepted Answer

A)  severely depleted the assets of the Federal Reserve.
B)  have been little used and therefore are ineffective.
C)  increased the moral hazard problem by limiting losses from bad financial decisions.
D)  were designed to offset the moral hazard created by the TARP and other bailout programs.E) B) and C)
F) C) and D)

Exam 34: Money, Banking, and Financial Institutions

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

Correct AnswerverifiedShow Answer

Wells Fargo, J.P.Morgan Chase, and Citibank are all primarily

Correct AnswerverifiedShow Answer

Which of the following is not part of the M2 money supply?

Correct AnswerverifiedShow Answer

TARP and other lender-of-last-resort programs implemented by the Fed in response to the financial crisis of 2007 and 2008

Correct AnswerverifiedShow Answer

The use of a debit card is most similar to

Correct AnswerverifiedShow Answer

Money supply M1 does not include the currency held by

Correct AnswerverifiedShow Answer

Currency held in bank vaults The M1 definition of money includes item(s)

Correct AnswerverifiedShow Answer

(Consider This) Credit cards are defined as money because they facilitate transactions.

Correct AnswerverifiedShow Answer

People can generally get the following items at their commercial banks, except

Correct AnswerverifiedShow Answer

Which of the following is not true about so-called mortgage-backed securities?

Correct AnswerverifiedShow Answer

The Federal Reserve System consists of which of the following?

Correct AnswerverifiedShow Answer

If you place a part of your summer earnings in a savings account, you are using money primarily as a

Correct AnswerverifiedShow Answer

Which of the following financial institutions declared bankruptcy as a result of the financial crisis of 2007 and 2008?

Correct AnswerverifiedShow Answer

Money functions as

Correct AnswerverifiedShow Answer

The basic requirement for an item to function as money is that it be

Correct AnswerverifiedShow Answer

Money performs its function as a store of value very well, because it protects one against the erosion of purchasing power from inflation.

Correct AnswerverifiedShow Answer

During a financial crisis, the Fed and other central banks often adopt an "extend and pretend" policy in their emergency lending activities.Which of the following is not a consequence of this policy?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Near monies

Correct AnswerverifiedShow Answer

Economic studies conducted in industrially advanced countries suggest there is

Correct AnswerverifiedShow Answer

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