Question 1

The Federal Deposit Insurance Corporation (FDIC) insures the total value of all deposits in banks that are members of the Fed.

Accepted Answer

A) True 
 B)False

Question 2

A financial institution that had become so large and so interconnected that its failure would have been such a disaster for the wider economy that failure had to be prevented, even if it required a financial bailout is referred to as _____

Accepted Answer

A)   a troubled-asset institution
B)   a failed intermediary
C)   a holding company
D)   too big to fail
E)   too big to rescue

Question 3

Barter is the direct exchange of goods and services for _____

Accepted Answer

A)   any kind of money.
B)   other goods and services.
C)   either goods or money.
D)   commodity money.
E)   foreign currency.

Question 4

The first step in the evolution of money involved the use of _____

Accepted Answer

A)   physical commodities.
B)   barter.
C)   pieces of paper representing claims on physical commodities.
D)   pieces of paper with no intrinsic value.
E)   electronic entries representing claims on pieces of paper with no intrinsic value.

Question 5

A corporation that may own several different banks is called a(n)  _____

Accepted Answer

A)   conglomerate.
B)   private bank.
C)   bank holding company.
D)   depositary institution.
E)   subsidiary.

Question 6

Deregulation of banks and other depository institutions allowed the FDIC to open bank branches of its own.

Accepted Answer

A) True 
 B)False

Question 7

Money-market mutual funds _____

Accepted Answer

A)   offer higher rates of interest than bank checking accounts, but lack check-writing privileges.
B)   offer higher rates of interest than bank checking accounts and also offer limited check-writing privileges.
C)   usually pay lower rates of interest than bank checking accounts.
D)   were originally developed and offered by banks to their customers.
E)   usually do not offer any check-writing privileges.

Question 8

Suppose an ocean liner sinks and its passengers are stranded on a lush tropical island. Which of the following could most likely be used as money in the economy that develops among the survivors?

Accepted Answer

A)   the life jackets they put on when leaving the ship
B)   the beads from the necklaces that were given out as party favors on the night the ship sank
C)   the leaves of the various tropical trees on the island
D)   the fish in the sea around the island
E)   the sand on the island's beaches

Question 9

The chair of the Board of Governors of the Fed must resign when a new president is elected.

Accepted Answer

A) True 
 B)False

Question 10

Before 1863, banks in the United States were chartered by the states in which they operated, and were called _____

Accepted Answer

A)   reserve banks.
B)   state banks.
C)   goldsmiths.
D)   thrifts.
E)   agencies.

Question 11

The wide acceptance of fiat money is determined by _____

Accepted Answer

A)   people's belief that it is worth something.
B)   the amount of precious metal that the government holds to back the money.
C)   the money's market value as a commodity.
D)   the rate of interest, which is the price paid to borrow money.
E)   its ability to function as a unit of account.

Question 12

Mortgage-backed securities quickly turned into _____

Accepted Answer

A)   subprime mortgages.
B)   troubled assets.
C)   adjustable-rate mortgages.
D)   negotiable CDs.
E)   discount bonds.

Question 13

Which of the following is associated with the problem of hyperinflation?

Accepted Answer

A)   Money is in short supply.
B)   The value of money rises dramatically.
C)   The government runs out of money.
D)   People look for alternatives to using money.
E)   People start to hold on to money for long periods of time.

Question 14

Using coins allowed for payment by _____

Accepted Answer

A)   count.
B)   weight.
C)   fiat money.
D)   banknotes.
E)   clipping.

Question 15

Financial institutions _____

Accepted Answer

A)   accumulate funds from savers and lend them to borrowers.
B)   accumulate funds from borrowers and lend them to savers.
C)   borrow funds from the government and lend them to borrowers.
D)   borrow funds from the government and lend them to savers.
E)   print money.

Question 16

Commodity money is something _____

Accepted Answer

A)   that has no intrinsic value.
B)   that has an intrinsic value.
C)   that is based on a valuable metal.
D)   whose value never changes.
E)   whose value cannot be determined.

Question 17

Only Federal Reserve banks can issue paper currency in the United States, and their power to do so is virtually unlimited.

Accepted Answer

A) True 
 B)False

Question 18

When silver and gold were used as money, both their quantity and quality were open to question. The solution was _____

Accepted Answer

A)   seashells.
B)   seigniorage.
C)   notes.
D)   coinage.
E)   fiat money.

Question 19

The most effective mechanism for reducing runs on banks is _____

Accepted Answer

A)   the discount rate.
B)   deposit insurance.
C)   the reserve requirement.
D)   open-market operations.
E)   the Federal Reserve note.

Question 20

What helped fuel the growth of the subprime mortgage market?

Accepted Answer

A)   high interest rates
B)   tariffs on global trade
C)   the growth of prime mortgages
D)   liquidity from countries like China
E)   It cannot be explained.

Exam 13: Money and the Financial System.

The first step in the evolution of money involved the use of _____

Correct AnswerverifiedShow Answer

The chair of the Board of Governors of the Fed must resign when a new president is elected.

Correct AnswerverifiedShow Answer

What helped fuel the growth of the subprime mortgage market?

Correct AnswerverifiedShow Answer

Which of the following is associated with the problem of hyperinflation?

Correct AnswerverifiedShow Answer

The wide acceptance of fiat money is determined by _____

Correct AnswerverifiedShow Answer

Money-market mutual funds _____

Correct AnswerverifiedShow Answer

Before 1863, banks in the United States were chartered by the states in which they operated, and were called _____

Correct AnswerverifiedShow Answer

A corporation that may own several different banks is called a(n) _____

Correct AnswerverifiedShow Answer

Barter is the direct exchange of goods and services for _____

Correct AnswerverifiedShow Answer

Using coins allowed for payment by _____

Correct AnswerverifiedShow Answer

Deregulation of banks and other depository institutions allowed the FDIC to open bank branches of its own.

Correct AnswerverifiedShow Answer

A financial institution that had become so large and so interconnected that its failure would have been such a disaster for the wider economy that failure had to be prevented, even if it required a financial bailout is referred to as _____

Correct AnswerverifiedShow Answer

The Federal Deposit Insurance Corporation (FDIC) insures the total value of all deposits in banks that are members of the Fed.

Correct AnswerverifiedShow Answer

Suppose an ocean liner sinks and its passengers are stranded on a lush tropical island. Which of the following could most likely be used as money in the economy that develops among the survivors?

Correct AnswerverifiedShow Answer

The most effective mechanism for reducing runs on banks is _____

Correct AnswerverifiedShow Answer

Financial institutions _____

Correct AnswerverifiedShow Answer

When silver and gold were used as money, both their quantity and quality were open to question. The solution was _____

Correct AnswerverifiedShow Answer

Mortgage-backed securities quickly turned into _____

Correct AnswerverifiedShow Answer

Commodity money is something _____

Correct AnswerverifiedShow Answer

Only Federal Reserve banks can issue paper currency in the United States, and their power to do so is virtually unlimited.

Correct AnswerverifiedShow Answer

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