Question 1

What "backs" the money supply of the United States?

Accepted Answer

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 valueE) B) and D)
F) B) and C)

Question 2

With token money, the face value is greater than the intrinsic value.

Accepted Answer

A) True 
 B)False

Question 3

The largest component of the money supply (M1)  is

Accepted Answer

A)  currency in bank vaults.
B)  currency in circulation.
C)  checkable deposits.
D)  stock certificates.E) All of the above
F) None of the above

Question 4

Credit card balances are part of money supply M2.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is included as part of the M1 money supply?

Accepted Answer

A)  $200,000 balance in the checking account of Main Street Trading Corp.
B)  $200,000 in reserves held by Main Street Commercial Bank in its vaults
C)  $2 million balance in the checking account of the U.S.Treasury
D)  $200 million in the vaults of the Federal Reserve BanksE) A) and B)
F) A) and C)

Question 6

The difference between M1 and M2 is that

Accepted Answer

A)  the former includes time deposits.
B)  the latter includes small-denominated time deposits, noncheckable savings accounts, money market deposit accounts, and money market mutual fund balances.
C)  the latter includes negotiable government bonds.
D)  the latter includes cash held by commercial banks and the U.S.Treasury.E) B) and C)
F) A) and D)

Question 7

The currency, or money, of the United States, like those of other countries, is

Accepted Answer

A)  commodity money.
B)  intrinsic money.
C)  token money.
D)  deposit money.E) C) and D)
F) A) and C)

Question 8

The M1 money supply is composed of currency, checkable deposits, and savings deposits.

Accepted Answer

A) True 
 B)False

Question 9

Which definition(s)  of the money supply include(s)  only items that are directly and immediately usable as a medium of exchange?

Accepted Answer

A)  M1
B)  M2
C)  neither M1 nor M2
D)  M1 and M2E) All of the above
F) B) and D)

Question 10

Money in the U.S.is essentially debt of

Accepted Answer

A)  businesses and the banks.
B)  the Federal Reserve System and the banks.
C)  the national and local governments.
D)  businesses and the Federal Reserve System.E) B) and C)
F) C) and D)

Question 11

(Last Word)  Solvent firms face the threat of bankruptcy during a financial crisis

Accepted Answer

A)  because, by law, the Federal Reserve can only serve as lender of last resort to insolvent firms.
B)  because the value of their assets is less than the value of their debts.
C)  when many assets are illiquid, making it difficult to make timely payments on debt.
D)  because the Federal Reserve extends loans to these firms at high rates of interest.E) C) and D)
F) None of the above

Question 12

Paper money (currency)  in the United States is issued by the

Accepted Answer

A)  U.S.Mint.
B)  Federal Reserve Banks.
C)  U.S.Treasury.
D)  national banks.E) C) and D)
F) A) and C)

Question 13

The group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes, and bonds)  is the

Accepted Answer

A)  Federal Deposit Insurance Corporation (FDI
C)  .
B)  Federal Bond Sale Authority.
C)  Council of Economic Advisers.
D)  Federal Open Market Committee (FOM
C)  .E) All of the above
F) C) and D)

Question 14

Which of the following statements is true as a result of Federal Reserve efforts to rescue the financial industry from the financial crisis of 2007 and 2008?

Accepted Answer

A)  From February 2008 to May 2009, the Fed oversaw the consolidation of 20 major financial institutions into fewer than a dozen.
B)  From March 2008 to February 2009, the Fed experienced a 50 percent decline in the value of assets held.
C)  From February 2008 to March 2009, Fed assets more than doubled to nearly $2 trillion.
D)  From February 2008 to March 2009, Fed lending caused the U.S.public debt to rise by over $1 trillion.E) None of the above
F) B) and C)

Question 15

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) All of the above

Question 16

(Last Word)  During the financial crisis of 2007-2008,

Accepted Answer

A)  many solvent firms were in danger of bankruptcy because their assets were illiquid.
B)  the Federal Reserve took over and reorganized a number of insolvent firms.
C)  many large banks were insolvent and ultimately declared bankruptcy.
D)  the Federal Reserve served as lender of last resort to solvent firms, but let insolvent firms go bankrupt.E) All of the above
F) A) and D)

Question 17

Which of the following financial institutions pool deposits of customers and use the money to buy a portfolio of stocks or bonds or both?

Accepted Answer

A)  thrifts
B)  brokerage firms
C)  mutual funds
D)  investment banksE) All of the above
F) B) and D)

Question 18

The Federal Reserve System of the United States is the country's

Accepted Answer

A)  financial adviser.
B)  comptroller or accountant.
C)  central bank.
D)  deposit insurance provider.E) None of the above
F) A) and D)

Question 19

During the Great Recession, the bailout money given to the car companies GM and Chrysler under the TARP program came from the Fed acting in its role as lender of last resort.Topic: The Policy Response to the Financial Crisis

Accepted Answer

A) True 
 B)False

Question 20

If product prices were stated in terms of marbles, then marbles would be functioning primarily as

Accepted Answer

A)  fiat money.
B)  legal tender.
C)  a store of value.
D)  a unit of account.E) A) and B)
F) All of the above

Exam 34: Money, Banking, and Financial Institutions

(Last Word) Solvent firms face the threat of bankruptcy during a financial crisis

Correct AnswerverifiedShow Answer

Which of the following is included as part of the M1 money supply?

Correct AnswerverifiedShow Answer

Money in the U.S.is essentially debt of

Correct AnswerverifiedShow Answer

Which of the following financial institutions pool deposits of customers and use the money to buy a portfolio of stocks or bonds or both?

Correct AnswerverifiedShow Answer

What "backs" the money supply of the United States?

Correct AnswerverifiedShow Answer

During the Great Recession, the bailout money given to the car companies GM and Chrysler under the TARP program came from the Fed acting in its role as lender of last resort.Topic: The Policy Response to the Financial Crisis

Correct AnswerverifiedShow Answer

Paper money (currency) in the United States is issued by the

Correct AnswerverifiedShow Answer

The Federal Reserve System of the United States is the country's

Correct AnswerverifiedShow Answer

The largest component of the money supply (M1) is

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The difference between M1 and M2 is that

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The M1 money supply is composed of currency, checkable deposits, and savings deposits.

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(Last Word) During the financial crisis of 2007-2008,

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The "shadow banking system" refers to

Correct AnswerverifiedShow Answer

The currency, or money, of the United States, like those of other countries, is

Correct AnswerverifiedShow Answer

Which of the following statements is true as a result of Federal Reserve efforts to rescue the financial industry from the financial crisis of 2007 and 2008?

Correct AnswerverifiedShow Answer

The group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes, and bonds) is the

Correct AnswerverifiedShow Answer

Which definition(s) of the money supply include(s) only items that are directly and immediately usable as a medium of exchange?

Correct AnswerverifiedShow Answer

If product prices were stated in terms of marbles, then marbles would be functioning primarily as

Correct AnswerverifiedShow Answer

With token money, the face value is greater than the intrinsic value.

Correct AnswerverifiedShow Answer

Credit card balances are part of money supply M2.

Correct AnswerverifiedShow Answer

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