978-1259723223 Test Bank TBChap034 Part 2

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AACSB: Knowledge Application

Acces s i b i l i t y : Keyboard Navigation

Blooms: Remember

Difficulty: 01 Easy

Learning Objective: 34-02 List and describe the components of the U.S. money supply.

Test Bank: I

Topic: The Components of the Money Supply

50. The money supply is backed

51. Which of the following does not explain what backs the money supply in the United States?

52. Suppose that the federal government suddenly declared that wheat was to be used as money.

What is a possible outcome of that decision?

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A. The value of the “wheat dollar” would be unstable depending on crop yields from year to

year.

B. Farmers would replace corn and soy crops with wheat.

C. Wheat would function as money so long as people accept it in exchange for goods and

services.

D. All of these are possible outcomes.

53. The purchasing power of money and the price level vary

54. The value of money varies

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accept it as payment.

Test Bank: I

Topic: What Backs the Money Supply?

55. If the price index rises from 100 to 120, the purchasing power value of the dollar

56. If the price index rises from 200 to 250, the purchasing power value of the dollar

57. The purchasing power of the dollar

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Blooms: Understand

Difficulty: 02 Medium

Learning Objective: 34-03 Describe what backs the money supply, making us willing to

accept it as payment.

Test Bank: I

Topic: What Backs the Money Supply?

58. During periods of rapid inflation, money may cease to work as a medium of exchange

59. Stabilizing a nation’s price level and the purchasing power of its money can be achieved

60. Other things equal, an excessive increase in the money supply will

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C. have no impact on the purchasing power of the dollar.

D. reduce the price level.

61. If P equals the price level expressed as an index number and $V equals the value of the

dollar, then

62.

Year

Price Level

Value of Dollar

1

1.00

$1.00

2

1.25

3

0.80

4

0.50

Refer to the given table. The value of the dollar in year 2 is

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C. $0.80.

D. $0.75.

63.

Year

Price Level

Value of Dollar

1

1.00

$1.00

2

1.25

3

0.80

4

0.50

Refer to the given table. The value of the dollar in year 3 is

64.

Year

Price Level

Value of Dollar

1

1.00

$1.00

2

1.25

3

0.80

4

0.50

Refer to the given table. The value of the dollar in year 4 is

65. The central authority of the U.S. banking system is the

66. The Federal Reserve System was created in

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67. In the U.S. economy, the money supply is controlled by the

68. As it relates to Federal Reserve activities, the acronym FOMC describes the

69. The Federal Open Market Committee (FOMC) is made up of

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A. the chair of the Board of Governors along with the 12 presidents of the Federal Reserve

Banks.

B. the seven members of the Board of Governors along with the president of the New York

Federal Reserve Bank.

C. the seven members of the Board of Governors of the Federal Reserve System along with the

three members of the Council of Economic Advisers.

D. the seven members of the Board of Governors of the Federal Reserve System along with the

president of the New York Federal Reserve Bank and four other Federal Reserve Bank

presidents on a rotating basis.

70. The group that sets the Federal Reserve System’s policy on buying and selling government

securities (bills, notes, and bonds) is the

71. Approximately how many commercial banks are now (2016) operating in the United States?

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Blooms: Understand

Difficulty: 02 Medium

Learning Objective: 34-04 Discuss the makeup of the Federal Reserve and its relationship

to banks and thrifts.

Test Bank: I

Topic: The Federal Reserve and the Banking System

73. The Board of Governors of the Federal Reserve has members.

74. The members of the Federal Reserve Board

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C. are elected by votes of the 12 presidents of the Federal Reserve Banks.

D. are appointed for 14-year terms.

75. An important routine function of the Federal Reserve Bank is to

76. Which of the following statements best describes the 12 Federal Reserve Banks?

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Learning Objective: 34-05 Identify the functions and responsibilities of the Federal

Reserve and explain why Fed independence is important.

Test Bank: I

Topic: Fed Functions, Responsibilities, and Independence

77. The seven members of the Board of Governors of the Federal Reserve System are

78. To say that the Federal Reserve Banks are quasi-public banks means that

79. Which of the following is the basic economic policy function of the Federal Reserve Banks?

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80. The Federal Reserve System

81. Research for industrially advanced countries indicates that

82. Research involving industrially advanced countries suggests that

83. Commercial banks and thrift institutions

84. “Subprime mortgage loans” refer to

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Learning Objective: 34-06 Identify and explain the main factors that contributed to the

financial crisis of 2007-2008.

Test Bank: I

Topic: The Financial Crisis of 2007 and 2008

85. What are “mortgage-backed securities“?

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

87. Banks lost money during the mortgage default crisis because

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D. of all of these reasons.

88. In the financial industry, “securitization” refers to

89. Collateralized default swaps

90. What does it mean when economists say that home buyers are “underwater” on their

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mortgages?

91. The “shadow banking system” refers to

2008.

92. Which of the following statements is true about the high rate of mortgage defaults that

contributed to the financial crisis of 2007 and 2008?

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D. The high rate of defaults resulted primarily from the two years of recession preceding the

mortgage default crisis.

93. Which of the following financial institutions declared bankruptcy as a result of the financial

crisis of 2007 and 2008?

94. Which of the following financial institutions was acquired by Bank of America as a result of

the financial crisis of 2007 and 2008?

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Topic: The Financial Crisis of 2007 and 2008

95. TARP, created in 2008, stands for

96. How much did the U.S. Congress allocate to the Troubled Asset Relief Program in 2008?

97. Some economists are concerned that the financial rescue provided by the TARP will

encourage financial investors and firms to take on greater risks in the future. This is an example

of

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Blooms: Understand

Difficulty: 02 Medium

Learning Objective: 34-07 Discuss the actions of the U.S. Treasury and the Federal

Reserve that helped keep the banking and financial crisis of 2007-2008 from worsening.

Test Bank: I

Topic: The Policy Response to the Financial Crisis

98. 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?

99. TARP and other lender-of–last-resort programs implemented by the Fed in response to the

financial crisis of 2007 and 2008