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34-93
institutions.
238. The Bureau of Consumer Financial Protection was created in 2010 to become part of the
239. If a firm possesses assets whose value exceeds the value of its debts, the firm is said to be
240. Theoretically, during a financial crisis, the Fed is supposed to act as a lender of last resort
to
241. In practice, during a financial crisis, the Fed and other central banks are under pressure to
adopt an "extend and pretend" policy, in order to contain the wave bankruptcies. "Extend and
pretend" refers to extending loans
242. During a financial crisis, the Fed and other central banks often adopt an "extend and
pretend" policy in their emergency lending activities. Which of the following is not a
consequence of this policy?
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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.
investments to avoid well-deserved bankruptcies.
D. It increases the chances of the Fed itself (or another central bank) being dragged into its own
bankruptcy crisis.
AACSB: Knowledge Application
A c c e s s i b i l i t y : Keyboard Navigation
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: II
Topic: The Policy Response to the Financial Crisis
True / False Questions
243. When you use money to purchase groceries, money is functioning as a store of value.
244. Money performs its function as a store of value very well, because it protects one against
the erosion of purchasing power from inflation.
245. As long as the owner (seller) of an asset is willing to accept any price, the asset will sell
quickly, thus making it meet the full definition of liquidity.
246. With token money, the face value is greater than the intrinsic value.
247. The M1 money supply is composed of currency, checkable deposits, and savings deposits.
248. Credit card balances are part of money supply M2.
249. In the United States, all money is essentially the debt of the Fed, commercial banks, and
thrift institutions.
250. The currency held in the vaults of commercial banks is included in the money supply M1.
251. Debit card balances are part of money supply M1, but credit card balances are not.
252. Using a debit card is like writing a check; the amount will be deducted from one's checking
account.
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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.
A c c e s 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: II
Topic: The Components of the Money Supply
253. The value (or purchasing power) of money increases when the price level increases.
254. The value of money in the United States is based on the stock of gold and silver held by the
United States government.
255. The Federal Reserve System is independent of Congress and the president and does not
have to follow orders from either Congress or the president.
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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.
to banks and thrifts.
Test Bank: II
Topic: The Federal Reserve and the Banking System
256. The Federal Open Market Committee (FOMC) regulates markets and enforces antitrust
laws to keep markets open and competitive.
257. Unlike banks, thrifts are not subject to monetary control by the Fed, and thus they (thrifts)
do not have to hold reserves against their checkable deposits.
258. The Federal Reserve System is the institution that issues the U.S. paper currency or dollar
bills.
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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: Fed Functions, Responsibilities, and Independence
259. The Federal Reserve System is a bankers' bank and thereby acts as a "lender of last resort"
to banks.
260. The general public can open deposit accounts at their district's Federal Reserve Bank.
261. The Financial Crisis of 2007–2008 was triggered by problems in the dot-com sector of the
economy.
262. A few years prior to the Financial Crisis of 2007–2008, many people were getting
approved for mortgage loans even without proper documentation or credit checks.
263. Subprime mortgages, which played a central role in the Financial Crisis of 2007–2008, had
been strongly encouraged and supported by the government before the crisis.
264. The Great Recession was the main cause of the Financial Crisis of 2007–2008.
265. During the Great Recession, the bailout money given to the car companies GM and
Chrysler under the TARP program came from the Fed acting in its role as lender of last resort.
266. The Fed traditionally can grant loans to commercial banks but not to investments banks
and securities firms.
267. The Financial Crisis of 2007–2008 halted the consolidation in the U.S. financial industry
that had caused a declining number but increasing size of firms in the industry prior to the crisis.
268. The so-called moral-hazard problem in financial management refers to the fact that
managers will tend to take on more risk if they know that they are somehow insured against
some or all of their losses.
34-103
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 c c 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
269. The TARP loans and the Fed's lender-of-last-resort actions that bailed out large, failing
financial institutions helped reduce the moral-hazard problem in financial management.
270. Insurance companies are a major category of financial institutions.
271. Mutual fund companies’ activities make their customers become indirect owners of stocks
and bonds in the mutual fund companies’ investment portfolios.
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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.
Difficulty: 02 Medium
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
272. During a financial crisis, the Fed and other central banks always adopt a strict policy of
lending only to financial firms that are solvent but illiquid.
