Question 1

The most important among the Federal Reserve district banks in conducting monetary policy is the

Accepted Answer

A)  Boston bank.
B)  Chicago bank.
C)  New York bank.
D)  San Francisco bank.E) A) and B)
F) A) and C)

Question 2

Which one of the following is considered to be a "stock" rather than a "flow" variable?

Accepted Answer

A)  income
B)  money
C)  wages
D)  profitsE) A) and C)
F) A) and D)

Question 3

Money functions as a store of value if it allows you to

Accepted Answer

A)  measure the value of goods in a reliable way.
B)  make exchanges in a more efficient manner.
C)  delay purchases until you want the goods.
D)  increase your confidence in money.E) A) and D)
F) B) and C)

Question 4

In defining money as M1, economists exclude time deposits because

Accepted Answer

A)  the intrinsic value of time deposits is nil.
B)  the purchasing power of time deposits is much less stable than that of checkable deposits and currency.
C)  they are not directly or immediately a medium of exchange.
D)  they are not recognized by the federal government as legal tender.E) B) and D)
F) A) and B)

Question 5

Which of these pairs of financial institutions are most alike in terms of their main lines of business?

Accepted Answer

A)  commercial banks and thrifts
B)  insurance companies and mutual fund companies
C)  thrifts and securities firms
D)  pension fund companies and commercial banksE) A) and D)
F) A) and C)

Question 6

If a firm possesses assets whose value exceeds the value of its debts, the firm is said to be

Accepted Answer

A)  insolvent.
B)  illiquid.
C)  solvent.
D)  liquid.E) B) and C)
F) A) and C)

Question 7

The value (or purchasing power) of money increases when the price level increases.

Accepted Answer

A) True 
 B)False

Question 8

Money market deposit accounts are included in

Accepted Answer

A)  M1 only.
B)  M2 only.
C)  neither M1 nor M2.
D)  both M1 and M2.E) None of the above
F) A) and C)

Question 9

Insurance companies mainly acquire householdsâ€™ savings by

Accepted Answer

A)  selling stocks and bonds to them.
B)  offering checking and savings accounts.
C)  offering policies in return for periodic premiums.
D)  selling financial advice and related consulting services.E) A) and C)
F) A) and B)

Question 10

Checkable deposits held in savings and loan institutions, mutual savings banks, and credit unions are part of the M1 definition of the money supply.

Accepted Answer

A) True 
 B)False

Question 11

The Federal Reserve System was established by the Federal Reserve Act of

Accepted Answer

A)  1913.
B)  1933.
C)  1945.
D)  1955.E) None of the above
F) All of the above

Question 12

The Federal Reserve System performs many functions, but its most important one is

Accepted Answer

A)  issuing currency.
B)  controlling the money supply.
C)  providing for check clearing and collection.
D)  acting as fiscal agent for the U.S.government.E) B) and C)
F) A) and C)

Question 13

One reason that near monies are important is because

Accepted Answer

A)  they simplify the definition of money and therefore the formulation of monetary policy.
B)  they can be easily converted into money or vice versa, and thereby can influence the stability of the economy.
C)  they do not reflect the level of consumer spending but they have a critical impact on saving and investment in the economy.
D)  credit cards synchronize one's expenditures and income, thereby reducing the cash and checkable deposits one must hold.E) B) and D)
F) C) and D)

Question 14

The Board of Governors of the Federal Reserve has members.

Accepted Answer

A)  5
B)  7
C)  9
D)  14E) B) and D)
F) B) and C)

Question 15

In the United States, all money is essentially the debt of the Fed, commercial banks, and thrift institutions.

Accepted Answer

A) True 
 B)False

Question 16

Between September 2007 and September 2009,

Accepted Answer

A)  the Fed oversaw the conversion of all thrifts into commercial banks.
B)  the FDIC closed more than 200 U.S.banks and shifted their deposits to other banks.
C)  the Fed increased capital requirements for larger financial institutions in an effort to reduce moral hazard.
D)  the FDIC paid out more than $500 billion to depositors who held money in failed banks.E) B) and D)
F) A) and C)

Question 17

Thrifts are known as "banker's banks" because they lend money to commercial banks.

Accepted Answer

A) True 
 B)False

Question 18

One major advantage of money serving as a medium of exchange is that it allows society to

Accepted Answer

A)  transfer purchasing power from the present to the future.
B)  measure the relative worth of products.
C)  escape the complications of barter.
D)  use credit cards instead of currency.E) None of the above
F) B) and D)

Question 19

The Federal Reserve Banks are owned by the

Accepted Answer

A)  federal government.
B)  Board of Governors.
C)  United States Treasury.
D)  member banks.E) A) and B)
F) A) and C)

Question 20

When a bank's loans are written off, it means that the bank's

Accepted Answer

A)  reserves are reduced, while its debt increases.
B)  reserves rise along with its debt.
C)  reserves fall along with its debt.
D)  reserves shrink, whereas its debt remains the same.E) None of the above
F) A) and B)

Exam 34: Money, Banking, and Financial Institutions

Checkable deposits held in savings and loan institutions, mutual savings banks, and credit unions are part of the M1 definition of the money supply.

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Money functions as a store of value if it allows you to

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The most important among the Federal Reserve district banks in conducting monetary policy is the

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When a bank's loans are written off, it means that the bank's

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One major advantage of money serving as a medium of exchange is that it allows society to

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Money market deposit accounts are included in

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The Federal Reserve System was established by the Federal Reserve Act of

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In the United States, all money is essentially the debt of the Fed, commercial banks, and thrift institutions.

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In defining money as M1, economists exclude time deposits because

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The Board of Governors of the Federal Reserve has members.

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The Federal Reserve System performs many functions, but its most important one is

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The Federal Reserve Banks are owned by the

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Insurance companies mainly acquire householdsâ€™ savings by

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Thrifts are known as "banker's banks" because they lend money to commercial banks.

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Between September 2007 and September 2009,

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Which one of the following is considered to be a "stock" rather than a "flow" variable?

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One reason that near monies are important is because

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If a firm possesses assets whose value exceeds the value of its debts, the firm is said to be

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Which of these pairs of financial institutions are most alike in terms of their main lines of business?

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The value (or purchasing power) of money increases when the price level increases.

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