Question 1

Which of the following statements best summarizes the difference between M-1 and M-2?

Accepted Answer

A)   The M-1 definition of the money supply includes only domestic currencies while the M-2 definition includes foreign currencies.
B)   The M-1 definition consists of "hard" currencies which are backed by gold and silver, while M-2 consists of "soft" currencies which are not backed by gold and silver.
C)   The M-2 definition includes everything in the M-1 definition, plus additional components such as money in savings accounts, money market accounts, and certificates of deposit.
D)   The M-1 money supply consists only of the currency (coins and paper money)  that circulates in our economy, while the M-2 includes traveler's checks and funds in demand deposits.E) All of the above
F) A) and D)

Question 2

The World Bank provides funding for:

Accepted Answer

A)   the developed nations in Europe and Asia.
B)   firms that want to participate in international trade but lack foreign exchange.
C)   multinational corporations that have a strong credit rating.
D)   projects to improve the standard of living in less-developed nations.E) None of the above
F) All of the above

Question 3

Prior to the establishment of the Federal Reserve System in 1913, the United States had no experience with a central bank.

Accepted Answer

A) True 
 B)False

Question 4

A direct payment is a preauthorized electronic payment.

Accepted Answer

A) True 
 B)False

Question 5

The interest paid on time deposits, today, represents the main difference between time and demand deposits.

Accepted Answer

A) True 
 B)False

Question 6

Due to the fact that investors did not individually purchase MBSs (mortgage-backed securities) in their investment accounts, they remained unaffected when the value of some of these investments became worthless.

Accepted Answer

A) True 
 B)False

Question 7

The strength of the U.S. dollar relative to other currencies depends mainly on:

Accepted Answer

A)   the rate of inflation in the United States.
B)   the performance of the U.S. economy relative to other economies.
C)   how much gold backs the money supply.
D)   exchange rate decisions made by the International Monetary Fund.E) C) and D)
F) B) and D)

Question 8

The United States first established a central bank in 1913 by establishing the Federal Reserve System.

Accepted Answer

A) True 
 B)False

Question 9

How did banks contribute to the recent financial crisis?

Accepted Answer

A)   They began to offer investment products other than demand and time deposits.
B)   They provided loans higher than the discount rate.
C)   They made risky loans and then created mortgage-backed securities from the assets they held.
D)   They refused to sell anything other than fixed-rate mortgages.E) None of the above
F) C) and D)

Question 10

According to the Adapting to Change box, it's hard to determine the exact value of Bitcoin.

Accepted Answer

A) True 
 B)False

Question 11

________ persuaded Congress to establish the first central bank in the United States

Accepted Answer

A)   Benjamin Franklin
B)   David Farragaut
C)   Franklin Roosevelt
D)   Alexander HamiltonE) C) and D)
F) A) and D)

Question 12

__________ represents the most commonly used category of the money supply

Accepted Answer

A)   M-1
B)   M-2
C)   M-3
D)   LE) B) and C)
F) C) and D)

Question 13

Shana works as an investment specialist for the Teamsters Union Central States Pension Fund. Her job involves deciding how to invest the contributions paid into the fund. Which of the following statements about Shana's job are true?

Accepted Answer

A)   She works for a bank.
B)   She will probably invest most of the pension's funds in safe corporate stocks and other conservative investments such as government securities.
C)   In order to qualify for maximum tax benefits, the funds Shana invests all must be contributed by the companies who employ members of the Teamsters Union, rather than by the union members themselves.
D)   The purpose of the investments Shana is making is to increase the current pay of union members.E) C) and D)
F) None of the above

Question 14

A more recent product of banks is checking accounts that pay interest to depositors.

Accepted Answer

A) True 
 B)False

Question 15

Discuss the methods the Fed uses to enact monetary policy and provide an explanation of the effects these methods have on the supply of money.

Accepted Answer

The Federal Reserve System has three bas...

Question 16

Although there are many new ways to perform electronic funds transfer, legally, the only way that an employer can pay an employee is by writing a check.

Accepted Answer

A) True 
 B)False

Question 17

While an electronic funds transfer represents a faster and more flexible method of making payments than writing checks, it is more expensive for banks.

Accepted Answer

A) True 
 B)False

Question 18

The problem with barter exchanges is that it is too difficult to find people to exchange your good with.

Accepted Answer

A) True 
 B)False

Question 19

When a commercial bank fails, depositors lose all of their money.

Accepted Answer

A) True 
 B)False

Question 20

Open-market operations is the buying and selling of government securities by the Federal Reserve Board.

Accepted Answer

A) True 
 B)False

Exam 20: Money, Financial Institutions, and the Federal Reserve

The strength of the U.S. dollar relative to other currencies depends mainly on:

Correct AnswerverifiedShow Answer

Shana works as an investment specialist for the Teamsters Union Central States Pension Fund. Her job involves deciding how to invest the contributions paid into the fund. Which of the following statements about Shana's job are true?

Correct AnswerverifiedShow Answer

The problem with barter exchanges is that it is too difficult to find people to exchange your good with.

Correct AnswerverifiedShow Answer

__________ represents the most commonly used category of the money supply

Correct AnswerverifiedShow Answer

The interest paid on time deposits, today, represents the main difference between time and demand deposits.

Correct AnswerverifiedShow Answer

A direct payment is a preauthorized electronic payment.

Correct AnswerverifiedShow Answer

While an electronic funds transfer represents a faster and more flexible method of making payments than writing checks, it is more expensive for banks.

Correct AnswerverifiedShow Answer

Discuss the methods the Fed uses to enact monetary policy and provide an explanation of the effects these methods have on the supply of money.

Correct AnswerverifiedThe Federal Reserve System has three bas...View AnswerShow Answer

Open-market operations is the buying and selling of government securities by the Federal Reserve Board.

Correct AnswerverifiedShow Answer

Although there are many new ways to perform electronic funds transfer, legally, the only way that an employer can pay an employee is by writing a check.

Correct AnswerverifiedShow Answer

The World Bank provides funding for:

Correct AnswerverifiedShow Answer

Due to the fact that investors did not individually purchase MBSs (mortgage-backed securities) in their investment accounts, they remained unaffected when the value of some of these investments became worthless.

Correct AnswerverifiedShow Answer

Prior to the establishment of the Federal Reserve System in 1913, the United States had no experience with a central bank.

Correct AnswerverifiedShow Answer

How did banks contribute to the recent financial crisis?

Correct AnswerverifiedShow Answer

The United States first established a central bank in 1913 by establishing the Federal Reserve System.

Correct AnswerverifiedShow Answer

When a commercial bank fails, depositors lose all of their money.

Correct AnswerverifiedShow Answer

________ persuaded Congress to establish the first central bank in the United States

Correct AnswerverifiedShow Answer

Which of the following statements best summarizes the difference between M-1 and M-2?

Correct AnswerverifiedShow Answer

A more recent product of banks is checking accounts that pay interest to depositors.

Correct AnswerverifiedShow Answer

According to the Adapting to Change box, it's hard to determine the exact value of Bitcoin.

Correct AnswerverifiedShow Answer

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The Federal Reserve System has three bas...
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