Question 1

In the financial industry, "securitization" refers to

Accepted Answer

A)  increasing insurance protection on bank deposits.
B)  requiring greater down payments on home purchases to reduce mortgage default risk.
C)  bundling groups of loans, bonds, mortgages, and other financial debts into new securities.
D)  increasing collateral requirements on loans.E) A) and B)
F) All of the above

Question 2

Firms whose central business is providing individual account shares of a group of stocks, bonds, or both are known as

Accepted Answer

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

Question 3

When a consumer wants to compare the price of one product with another, money is primarily functioning as a

Accepted Answer

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

Question 4

The M2 money supply is larger than the M1 money supply.

Accepted Answer

A) True 
 B)False

Question 5

The TARP loans and the Fed's lender-of-last-resort actions that bailed out large, failing financial institutions helped reduce the moral-hazard problem in financial management.

Accepted Answer

A) True 
 B)False

Question 6

The paper currencies of the United States are also called

Accepted Answer

A)  Federal Reserve notes.
B)  Treasury bills.
C)  U.S.Government notes.
D)  Treasury bonds.E) B) and C)
F) B) and D)

Question 7

The Federal backing for money in the United States comes from

Accepted Answer

A)  providing sufficient quantities of precious metals, such as gold and silver, to cover the amount of paper money in circulation.
B)  pledging physical assets, such as land, natural resources, and public buildings, as collateral for outstanding currency.
C)  controlling the money supply in order to keep the value of money relatively stable over time.
D)  protecting checkable deposits at financial institutions with deposit guarantees.E) B) and C)
F) A) and D)

Question 8

The near-money components of M2 are

Accepted Answer

A)  equally liquid as the M1 components of M2.
B)  more liquid than the M1 components of M2.
C)  less liquid than the M1 components of M2.
D)  highly illiquid.E) A) and D)
F) B) and D)

Question 9

Which of the following is not true about subprime mortgage loans?

Accepted Answer

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

Question 10

The Federal Open Market Committee (FOMC) .

Accepted Answer

A)  provides advice on banking stability to the Fed.
B)  monitors regulatory banking laws for member banks.
C)  sets policy on the sale and purchase of government bonds by the Fed.
D)  follows the actions and operations of financial markets to keep them open and competitive.E) A) and B)
F) B) and C)

Question 11

If the price index rises from 100 to 130, then the purchasing power of the dollar will fall by about

Accepted Answer

A)  15 percent.
B)  19 percent.
C)  23 percent.
D)  30 percent.E) A) and B)
F) A) and C)

Question 12

The general public can open deposit accounts at their district's Federal Reserve Bank.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is not one of the causes of the skyrocketing mortgage default rates that triggered the financial crisis in 2007-2008?

Accepted Answer

A)  Mortgage lending became very lax.
B)  Many people took on mortgages that they were simply incapable of repaying.
C)  Housing price increased drastically.
D)  Real estate values started declining after having risen for many years.E) A) and B)
F) A) and C)

Question 14

The Federal Reserve System is a bankers' bank and thereby acts as a "lender of last resort" to banks.

Accepted Answer

A) True 
 B)False

Question 15

The currency held in the vaults of commercial banks is included in the money supply M1.

Accepted Answer

A) True 
 B)False

Question 16

Theoretically, during a financial crisis, the Fed is supposed to act as a lender of last resort to

Accepted Answer

A)  all insolvent banks.
B)  insolvent banks that are illiquid.
C)  solvent banks that are illiquid.
D)  insolvent banks that are highly liquid.E) C) and D)
F) B) and D)

Question 17

Holding the money deposits of businesses and households and making loans to the public are the basic functions of

Accepted Answer

A)  district banks of the Federal Reserve System.
B)  commercial banks and thrift institutions.
C)  the Federal Open Market Committee and the Board of Governors.
D)  the Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance Corporation.E) A) and B)
F) A) and C)

Question 18

Research involving industrially advanced countries suggests that

Accepted Answer

A)  the more independent the central bank, the lower the average annual growth of real GDP.
B)  the more independent the central bank, the higher the average annual growth of real GDP.
C)  there is no relationship between the degree of independence of a country's central bank and the growth rate of its real GDP.
D)  the less independent the central bank, the higher the average annual rate of inflation.E) All of the above
F) B) and C)

Question 19

Coins held in commercial bank vaults are

Accepted Answer

A)  included in M1 but not in M2.
B)  included both in M1 and in M2.
C)  included in M2 but not in M1.
D)  not part of the nation's money supply.E) A) and B)
F) A) and C)

Question 20

Subprime mortgages, which played a central role in the Financial Crisis of 2007-2008, had been strongly encouraged and supported by the government before the crisis.

Accepted Answer

A) True 
 B)False

Exam 34: Money, Banking, and Financial Institutions

The M2 money supply is larger than the M1 money supply.

Correct AnswerverifiedShow Answer

If the price index rises from 100 to 130, then the purchasing power of the dollar will fall by about

Correct AnswerverifiedShow Answer

The Federal backing for money in the United States comes from

Correct AnswerverifiedShow Answer

Coins held in commercial bank vaults are

Correct AnswerverifiedShow Answer

In the financial industry, "securitization" refers to

Correct AnswerverifiedShow Answer

Which of the following is not one of the causes of the skyrocketing mortgage default rates that triggered the financial crisis in 2007-2008?

Correct AnswerverifiedShow Answer

Theoretically, during a financial crisis, the Fed is supposed to act as a lender of last resort to

Correct AnswerverifiedShow Answer

Subprime mortgages, which played a central role in the Financial Crisis of 2007-2008, had been strongly encouraged and supported by the government before the crisis.

Correct AnswerverifiedShow Answer

The Federal Reserve System is a bankers' bank and thereby acts as a "lender of last resort" to banks.

Correct AnswerverifiedShow Answer

The paper currencies of the United States are also called

Correct AnswerverifiedShow Answer

Research involving industrially advanced countries suggests that

Correct AnswerverifiedShow Answer

The TARP loans and the Fed's lender-of-last-resort actions that bailed out large, failing financial institutions helped reduce the moral-hazard problem in financial management.

Correct AnswerverifiedShow Answer

Firms whose central business is providing individual account shares of a group of stocks, bonds, or both are known as

Correct AnswerverifiedShow Answer

The currency held in the vaults of commercial banks is included in the money supply M1.

Correct AnswerverifiedShow Answer

Holding the money deposits of businesses and households and making loans to the public are the basic functions of

Correct AnswerverifiedShow Answer

The Federal Open Market Committee (FOMC) .

Correct AnswerverifiedShow Answer

The general public can open deposit accounts at their district's Federal Reserve Bank.

Correct AnswerverifiedShow Answer

The near-money components of M2 are

Correct AnswerverifiedShow Answer

Which of the following is not true about subprime mortgage loans?

Correct AnswerverifiedShow Answer

When a consumer wants to compare the price of one product with another, money is primarily functioning as a

Correct AnswerverifiedShow Answer

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