978-1259723223 Test Bank TBChap034 Part 5

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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

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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

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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?

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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

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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: 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

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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?

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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

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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

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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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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?