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34-81
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Difficulty: 01 Easy
Learning Objective: 34-05 Identify the functions and responsibilities of the Federal
Reserve and explain why Fed independence is important.
Test Bank: II
Topic: Fed Functions, Responsibilities, and Independence
206. When the Fed acts as a "lender of last resort," as it did in the financial crisis of 2007–2008,
it is performing its role of
207. Which group is responsible for the policy decision of changing the money supply?
208. The main function of the Federal Reserve System is to
34-82
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D. control the money supply.
209. The Federal Reserve System performs many functions, but its most important one is
210. The Federal Reserve System performs the following functions except
211. The Federal Reserve System is an
212. The reason for the Fed being set up as an independent agency of government is to
213. Economic studies conducted in industrially advanced countries suggest there is
34-84
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 34-05 Identify the functions and responsibilities of the Federal
Reserve and explain why Fed independence is important.
Test Bank: II
Topic: Fed Functions, Responsibilities, and Independence
214. The Financial Crisis of 2007–2008 started in which sector of the economy?
215. The major wave of defaults on home mortgages in 2007 destabilized
216. Which of the following is not true about subprime mortgage loans?
34-85
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D. They were considered high-risk loans because the borrowers had poor credit ratings.
217. When a bank's loans are written off, it means that the bank's
218. When a bank's loans are written off, then the bank's
219. Which of the following is not true about so-called mortgage-backed securities?
220. Which of the following is not one of the causes of the skyrocketing mortgage default rates
that triggered the financial crisis in 2007–2008?
221. Securitization, the process of forming new securities by bundling or slicing up groups of
securities like mortgages and bonds, is
34-87
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Learning Objective: 34-06 Identify and explain the main factors that contributed to the
financial crisis of 2007-2008.
Test Bank: II
Topic: The Financial Crisis of 2007 and 2008
222. The destabilizing effects of defaulting mortgages quickly spread throughout the financial
system because those mortgages were involved in widespread
223. The bailout money that went to giant financial institutions like Citibank and Goldman
Sachs, along with General Motors and Chrysler, during the Financial Crisis and the Great
Recession, came from the
224. The government bailout of large institutions creates the problem of moral hazard, which
means that these large firms will
34-88
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
B. have an incentive to make highly risky investments.
C. now have to play it safer to reduce their risks.
D. be limited in terms of the securities and services that they get involved in.
225. The so-called moral hazard problem refers to one's tendency to
226. Which of the following bank-related policies of the Fed fosters huge moral hazard
problems?
34-89
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Topic: The Policy Response to the Financial Crisis
227. The so-called too-big-to-fail policy has two conflicting sides: on one hand there's the
moral hazard problem that it creates, but on the other hand, the Fed must
228. Traditionally, the Federal Reserve can give emergency loans only to
229. During the Financial Crisis of 2007–2008, Goldman Sachs, Morgan Stanley, and other
financial firms with heavy exposure to the mortgage-related problems rushed to become bank
holding companies in order to
34-90
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
A cc e s s i b i l i t y : Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 34-08 Identify the main subsets of the financial services industry in
the United States and provide examples of some firms in each category.
Test Bank: II
Topic: The Postcrisis U.S. Financial Services Industry
230. Which of the following trends had been happening in the banking industry even before the
Financial Crisis of 2007–2008?
231. The consolidation in the financial industry into fewer and larger firms
232. The blurring of the lines separating the subsets of the financial industry started in the
34-91
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A. 1940s.
B. 1960s.
C. 1970s.
D. 1990s.
233. "Thrifts" refers to the following institutions except
234. The following financial institutions traditionally accept deposits from savers, except
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Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Topic: The Postcrisis U.S. Financial Services Industry
235. Insurance companies mainly acquire households’ savings by
236. Which of the following financial institutions pool deposits of customers and use the money
to buy a portfolio of stocks or bonds or both?
237. Which of the following is not a provision of the Wall Street Reform & Consumer
Protection Act of 2010?
