Question 1

TARP,created in 2008,stands for:

Accepted Answer

A)   Toxic Asset Relief Program
B)   Troubled Asset Recovery Plan
C)   Toxic Asset Reinvestment Policy
D)   Troubled Asset Relief ProgramE) A) and C)
F) A) and B)

Question 2

The amount of money reported as M2:

Accepted Answer

A)   is smaller than the amount reported as M1.
B)   is larger than the amount reported as M1.
C)   excludes coins and currency.
D)   includes large ($100,000 or more) certificates of deposit.E) None of the above
F) All of the above

Question 3

Checkable deposits are classified as money because:

Accepted Answer

A)   they can be readily used in purchasing goods and paying debts.
B)   banks hold currency equal to the value of their checkable deposits.
C)   they are ultimately the obligations of the Treasury.
D)   they earn interest income for the depositor.E) None of the above
F) All of the above

Question 4

As part of its response to the financial crisis of 2007 and 2008,Federal Reserve Banks began paying interest on reserve deposits.

Accepted Answer

A) True 
 B)False

Question 5

Collateralized default swaps:

Accepted Answer

A)   helped reduce the losses from the mortgage default crisis.
B)   involve exchanging high-risk mortgages for low-risk mortgage-backed securities.
C)   are loans to investors in mortgage-backed securities.
D)   insured holders of loan-backed securities in case the underlying loans were not repaid.E) A) and D)
F) A) and C)

Question 6

The "shadow banking system" refers to:

Accepted Answer

A)   the provision of credit through the underground economy when the financial crisis of 2007 and 2008 occurred.
B)   the process by which securities exchanges provide credit for personal and business needs apart from traditional bank lending.
C)   the series of illegal financial transactions that precipitated the financial crisis of 2007 and 2008.
D)   mortgage loans made to homebuyers who are poor credit risks.E) A) and B)
F) None of the above

Question 7

Checkable deposits are:

Accepted Answer

A)   included in M1.
B)   not included in either Ml or M2.
C)   considered to be a near money.
D)   also called time deposits.E) All of the above
F) A) and B)

Question 8

The Glass-Steagall Act of 1933:

Accepted Answer

A)   encouraged the creation of large,interconnected financial services firms.
B)   was a primary cause of the 2007-2008 financial crisis and subsequent recession.
C)   created banks "too big to fail" and "too big to jail."
D)   separated high-risk and low-risk financial activities across different firms.E) A) and D)
F) All of the above

Question 9

Which of the following programs was not designed and implemented by the Federal Reserve?

Accepted Answer

A)   Troubled Asset Relief Program.
B)   Term Securities Lending Facility.
C)   Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility.
D)   Primary Dealer Credit Facility.E) A) and D)
F) A) and C)

Question 10

The purchasing power of the dollar:

Accepted Answer

A)   has been increasing in recent years because of economic growth.
B)   varies directly with the cost-of-living index.
C)   is inversely related to the level of aggregate demand.
D)   is the reciprocal of the price level.E) A) and B)
F) A) and C)

Question 11

When banks bundled mortgage loans and sold the resulting mortgage-backed securities:

Accepted Answer

A)   they insulated the banking system from any risk associated with mortgage defaults.
B)   they greatly reduced the overall risk of mortgage defaults.
C)   buyers of these securities assumed all of the risk of mortgage defaults.
D)   they reduced their direct exposure to mortgage default risk but were still exposed through loans to investors in mortgage-backed securities.E) C) and D)
F) A) and B)

Question 12

Research for industrially advanced countries indicates that:

Accepted Answer

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

Question 13

Which of the following is the basic economic policy function of the Federal Reserve Banks?

Accepted Answer

A)   Holding the deposits or reserves of commercial banks.
B)   Acting as fiscal agents for the federal government.
C)   Controlling the supply of money.
D)   The collection or clearing of checks among commercial banks.E) B) and D)
F) None of the above

Question 14

The Federal Open Market Committee (FOMC) is made up of:

Accepted Answer

A)   the chair of the Board of Governors along with the 12 presidents of the Federal Reserve Banks.
B)   the seven members of the Board of Governors along with the president of the New York Federal Reserve Bank.
C)   the seven members of the Board of Governors of the Federal Reserve System along with the three members of the Council of Economic Advisers.
D)   the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis.E) B) and D)
F) None of the above

Question 15

Which of the following statements is true about the high rate of mortgage defaults that contributed to the financial crisis of 2007 and 2008?

Accepted Answer

A)   High interest rates on mortgage loans were the primary cause of defaults.
B)   The high rate of defaults occurred despite the efforts of government to discourage new home ownership and slow the growth of the housing bubble.
C)   Prior to the rise in defaults,banks had become lax in their lending practices,resulting in a large number of bad loans.
D)   The high rate of defaults resulted primarily from the two years of recession preceding the mortgage default crisis.E) A) and B)
F) A) and C)

Question 16

(Consider This) Which of the following is not part of the M2 money supply?

Accepted Answer

A)   Currency in circulation.
B)   Credit card balances.
C)   Small-denominated time deposits of less than $100,000.
D)   Checkable deposits.E) A) and B)
F) A) and D)

Question 17

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 deposits.E) All of the above
F) A) and D)

Question 18

Stock market price quotations best exemplify money serving as a:

Accepted Answer

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

Question 19

If P equals the price level expressed as an index number and $V equals the value of the dollar,then:

Accepted Answer

A)   P = $V - 1.
B)   $V = 1/P.
C)   1 = $V/P.
D)   $V = P - 1.E) B) and D)
F) A) and D)

Question 20

Some economists are concerned that the financial rescue provided by the TARP will encourage financial investors and firms to take on greater risks in the future.This is an example of:

Accepted Answer

A)   moral hazard.
B)   adverse selection.
C)   a prisoner's dilemma.
D)   shadow banking.E) A) and B)
F) B) and C)

Exam 33: Money, Banking, and Financial Institutions

The Glass-Steagall Act of 1933:

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The purchasing power of the dollar:

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Checkable deposits are:

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Research for industrially advanced countries indicates that:

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The "shadow banking system" refers to:

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(Consider This) Which of the following is not part of the M2 money supply?

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TARP,created in 2008,stands for:

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Which of the following statements is true about the high rate of mortgage defaults that contributed to the financial crisis of 2007 and 2008?

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Some economists are concerned that the financial rescue provided by the TARP will encourage financial investors and firms to take on greater risks in the future.This is an example of:

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Collateralized default swaps:

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Which of the following is the basic economic policy function of the Federal Reserve Banks?

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The amount of money reported as M2:

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When banks bundled mortgage loans and sold the resulting mortgage-backed securities:

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As part of its response to the financial crisis of 2007 and 2008,Federal Reserve Banks began paying interest on reserve deposits.

Correct AnswerverifiedShow Answer

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

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Which of the following programs was not designed and implemented by the Federal Reserve?

Correct AnswerverifiedShow Answer

Checkable deposits are classified as money because:

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Stock market price quotations best exemplify money serving as a:

Correct AnswerverifiedShow Answer

If P equals the price level expressed as an index number and $V equals the value of the dollar,then:

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The Federal Open Market Committee (FOMC) is made up of:

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