Question 1

The U.S.Treasury is the only agency authorized to put money into circulation in the U.S.economy.

Accepted Answer

A) True 
 B)False

Question 2

(Consider This)  Credit card balances are

Accepted Answer

A)  a component of M1.
B)  a component of M2 but not of M1.
C)  a component of M1 but not of M2.
D)  not a component of M1 or M2.

Question 3

The so-called moral hazard problem refers to one's tendency to

Accepted Answer

A)  buy less of something if one does not have good information about it.
B)  avoid something that is considered risky or hazardous.
C)  get insurance against some possible hazard or danger.
D)  take on greater risk if one is at least partly insured against losses.

Question 4

The purchasing power of the dollar would fall by 20 percent if the price index rises by

Accepted Answer

A)  10 percent.
B)  12.5 percent.
C)  25 percent.
D)  44 percent.

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.

Question 6

As of February 2016, M1 accounted for roughly what percentage of M2?

Accepted Answer

A)  10 percent
B)  25 percent
C)  50 percent
D)  75 percent

Question 7

The Federal Reserve System is divided into

Accepted Answer

A)  5 districts.
B)  7 districts.
C)  12 districts.
D)  15 districts.

Question 8

Money eliminates the need for a coincidence of wants in trading primarily through its role as a

Accepted Answer

A)  unit of account.
B)  medium of exchange.
C)  store of value.
D)  medium of deferred payment.

Question 9

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 10

(Last Word)  Which of the following best describes the policy of "extend and pretend"?

Accepted Answer

A)  Leading up to the financial crisis, financial institutions would extend loans to borrowers with poor prospects for repayment.
B)  Financial institutions use securitization to sell off subprime loans.
C)  In its role as lender of last resort, the Federal Reserve did not distinguish between insolvent and solvent firms.
D)  Leading up to the financial crisis, the Federal Reserve ignored signs of trouble and continued to keep interest rates at historically low levels.

Question 11

(Consider This)  Credit cards are

Accepted Answer

A)  the fastest-growing component of the M1 money supply.
B)  near monies that are part of the M2 money supply but not the M1 money supply.
C)  not money, as officially defined.
D)  also known as time deposits.

Question 12

Gold backs the U.S.money supply.

Accepted Answer

A) True 
 B)False

Question 13

Using a debit card is like writing a check; the amount will be deducted from one's checking account.

Accepted Answer

A) True 
 B)False

Question 14

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.

Question 15

When economists say that money serves as a unit of account, they mean that it is

Accepted Answer

A)  a way to keep wealth in a readily spendable form for future use.
B)  a means of payment.
C)  a monetary unit for measuring and comparing the relative values of goods.
D)  declared as legal tender by the government.

Question 16

Currency in circulation is part of

Accepted Answer

A)  M1 only.
B)  M2 only.
C)  neither M1 nor M2.
D)  both M1 and M2.

Question 17

When you use money to purchase groceries, money is functioning as a store of value.

Accepted Answer

A) True 
 B)False

Question 18

Checkable deposits include

Accepted Answer

A)  both large- and small-denominated time deposits.
B)  the deposits of banks and thrifts on which checks can be written.
C)  only the checkable deposits of commercial banks.
D)  only the checkable deposits of thrift institutions.

Question 19

What function is money serving when you deposit money in a savings account?

Accepted Answer

A)  a store of value
B)  a unit of account
C)  a checkable deposit
D)  a medium of exchange

Question 20

Small-denominated time deposits, by definition

Accepted Answer

A)  mature in one month or less.
B)  mature in one year or less.
C)  are less than $100,000.
D)  are held by state and local banks only.

Exam 34: Money, Banking, and Financial Institutions

What function is money serving when you deposit money in a savings account?

Correct AnswerverifiedShow Answer

Small-denominated time deposits, by definition

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Checkable deposits include

Correct AnswerverifiedShow Answer

(Last Word) Which of the following best describes the policy of "extend and pretend"?

Correct AnswerverifiedShow Answer

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

When economists say that money serves as a unit of account, they mean that it is

Correct AnswerverifiedShow Answer

Gold backs the U.S.money supply.

Correct AnswerverifiedShow Answer

The purchasing power of the dollar would fall by 20 percent if the price index rises by

Correct AnswerverifiedShow Answer

Money eliminates the need for a coincidence of wants in trading primarily through its role as a

Correct AnswerverifiedShow Answer

Collateralized default swaps

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The U.S.Treasury is the only agency authorized to put money into circulation in the U.S.economy.

Correct AnswerverifiedShow Answer

Currency in circulation is part of

Correct AnswerverifiedShow Answer

(Consider This) Credit cards are

Correct AnswerverifiedShow Answer

When you use money to purchase groceries, money is functioning as a store of value.

Correct AnswerverifiedShow Answer

(Consider This) Credit card balances are

Correct AnswerverifiedShow Answer

Using a debit card is like writing a check; the amount will be deducted from one's checking account.

Correct AnswerverifiedShow Answer

The Federal Reserve System is divided into

Correct AnswerverifiedShow Answer

As of February 2016, M1 accounted for roughly what percentage of M2?

Correct AnswerverifiedShow Answer

The so-called moral hazard problem refers to one's tendency to

Correct AnswerverifiedShow Answer

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