Reference no: EM13465945
1) Although the FDIC was created to prevent bank failures, its existence encourages banks to
A)take too much risk.
B)hold too much capital.
C)open too many branches.
D)buy too much stock.
2) Deposit insurance has not worked well in countries with
A) a weak institutional environment.
B) strong supervision and regulation.
C) a tradition of the rule of law.
D) few opportunities for corruption.
3) The government safety net creates ________ problem because risk-loving entrepreneurs might find banking an attractive industry.
A)an adverse selection
B)a moral hazard
C)a lemons
D)a revenue
4) If the FDIC decides that a bank is too big to fail, it will use the ________ method, effectively ensuring that ________ depositors will suffer losses.
A) payoff; large
B) payoff; no
C) purchase and assumption; large
D) purchase and assumption; no
5) The result of the too-big-to-fail policy is that ________ banks will take on ________ risks, making bank failures more likely.
A) small; fewer
B) small; greater
C) big; fewer
D) big; greater
6) A well-capitalized bank has ________ to lose if it fails and thus is ________ likely to pursue risky activities.
A) more; more
B) more; less
C) less; more
D) less; less
7) To be considered well capitalized, a bank's leverage ratio must exceed ________.
A) 10%
B) 8%
C) 5%
D) 3%
8) Off-balance-sheet activities
A) generate fee income with no increase in risk.
B) increase bank risk but do not increase income.
C) generate fee income but increase a bank's risk.
D) generate fee income and reduce risk.
9) The Act that required separation of commercial and investment banking was
A) the Federal Reserve Act.
B) the Glass-Steagall Act.
C) the Bank Holding Company Act.
D) the Monetary Control Act.
10) Agreements such as the ________ are attempts to standardize international banking regulations.
A)Basel Accord
B)UN Bank Accord
C)GATT Accord
D)WTO Accord
11) Although as many as half of the S&Ls in the U.S. had a negative net worth and were thus insolvent by the end of 1982, regulators adopted a policy of ________, which amounted to ________ capital requirements.
A)regulatory forbearance; raising
B)regulatory forbearance; lowering
C)regulatory agnosticism; raising
D)regulatory agnosticism; lowering
12) The Argentine banking crisis of 2001 resulted from Argentina's banks being required to
A)purchase large amounts of government debt.
B)pay back the value of failed loans.
C)make risky real estate loans.
D)make loans to only state-owned businesses.
13) The Japanese banking system went through a cycle of ________ in the 1990s similar to the one that occurred in the U.S. in the 1980s.
A)regulatory forbearance
B)policy antagonism
C)regulatory ignorance
D)policy renewal
14) The evidence from banking crises in other countries indicates that
A)deposit insurance is to blame in each country.
B)a government safety net for depositors need not increase moral hazard.
C)regulatory forbearnace never leads to problems.
D)deregulation combined with poor regulatory supervision raises moral hazard incentives.
15) The financial panic of 1907 resulted in such widespread bank failures and substantial losses to depositors that the American public finally became convinced that
A)the First Bank of the United States had failed to serve as a lender of last resort.
B)the Second Bank of the United States had failed to serve as a lender of last resort.
C)the Federal Reserve System had failed to serve as a lender of last resort.
D)a central bank was needed to prevent future panics.
16) What makes the Federal Reserve so unique compared to other central banks around the world is its
A) centralized structure.
B) decentralized structure.
C) regulatory functions.
D) monetary policy functions.
17) Member commercial banks have purchased stock in their district Fed banks; the dividend paid by that stock is limited by law to ________ percent annually.
A)four
B)five
C)six
D)eight
18) The Federal Reserve Bank of ________ plays a special role in the Federal Reserve System because it houses the open market desk.
A)Boston
B)New York
C)Chicago
D)San Francisco
19) All ________ are required to be members of the Fed.
A) state chartered banks
B) nationally chartered banks
C) banks with assets less than $100 million
D) banks with assets less than $500 million
20) The Federal Reserve entity that makes decisions regarding the conduct of open market operations is the
A) Board of Governors.
B) chairman of the Board of Governors.
C) Federal Open Market Committee.
D) Open Market Advisory Council
21) Members of Congress are able to influence monetary policy, albeit indirectly, through their ability to
A)withhold appropriations from the Board of Governors.
B)withhold appropriations from the Federal Open Market Committee.
C)propose legislation that would force the Fed to submit budget requests to Congress, as must other government agencies.
D)instruct the General Accounting Office to audit the foreign exchange market functions of the Federal Reserve.
22) As of the beginning of the year 2006, there are ________ countries that have representation on the Governing Council of the European Central Bank.
A)thirteen
B) eight
C) twelve
D) fifteen
23) The European Central Bank is located in
A) Berlin
B) Brussels
C) Geneva
D) Frankfurt
24) Regarding central bank independence,
A)the Fed is more independent than the European Central Bank.
B)the European Central Bank is more independent than the Fed.
C)the trend in industrialized nations has been to reduce central bank independence.
D)the Bank of England has the longest tradition of independence of any central bank in the world.
25) The trend in recent years is that more and more governments
A)have been granting greater independence to their central banks.
B)have been reducing the independence of their central banks to make them more accountable for poor economic performance.
C)have mandated that their central banks focus on controlling inflation.
D)have required their central banks to cooperate more with their Ministers of Finance.
26) The theory of bureaucratic behavior suggests that the objective of a bureaucracy is to maximize
A) the public's welfare.
B) profits.
C) its own welfare.
D) conflict with the executive and legislative branches of government.
27) If a bank has excess reserves of $5,000 and demand deposit liabilities of $80,000, and if the reserve requirement is 20 percent, then the bank has actual reserves of
A) $11,000.
B) $20,000.
C) $21,000.
D) $26,000.
28) A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the reserve requirement is 25 percent. If the reserve requirement is lowered to 20 percent, the bank's excess reserves will be
A) $1,000.
B) $5,000.
C) $8,000.
D) $9,000.
29) Decisions by depositors to increase their holdings of ________, or of banks to hold excess reserves will result in a ________ expansion of deposits than the simple model predicts.
A) deposits; smaller
B) deposits; larger
C) currency; smaller
D) currency; larger
30) Total reserves minus bank deposits with the Fed equals
A)vault cash.
B)excess reserves.
C)required reserves.
D)currency in circulation.
31) Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and one million dollars in required reserves. Given this information, we can say First National Bank has ________ million dollars in excess reserves.
A) three
B) nine
C) ten
D) eleven
32) Suppose that from a new checkable deposit, First National Bank holds eight million dollars on deposit with the Federal Reserve, one million dollars in required reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in vault cash.
A) two
B) eight
C) nine
D) ten
33) When banks borrow money from the Federal Reserve, these funds are called
A) federal funds.
B) discount loans.
C) federal loans.
D) Treasury funds.
34) ________ the Federal Reserve earn income while ________ the Federal Reserve cost nothing.
A) Currency in circulation by; assets of
B) Reserves of; assets of
C) Liabilities of; assets of
D) Assets of; liabilities of
35) When a bank buys a government bond from the Federal Reserve, reserves in the banking system ________ and the monetary base ________, everything else held constant.
A)increase; increases
B)increase; decreases
C)decrease; increases
D)decrease; decreases
36) When the Fed buys $100 worth of bonds from First National Bank, reserves in the banking system
A) increase by $100.
B) increase by more than $100.
C) decrease by $100.
D) decrease by more than $100.
37) If a member of the nonbank public sells a government bond to the Federal Reserve in exchange for currency, the monetary base will ________, but ________.
A) remain unchanged; reserves will fall
B) remain unchanged; reserves will rise
C) rise; currency in circulation will remain unchanged
D) rise; reserves will remain unchanged
38) When the Federal Reserve extends a discount loan to a bank, the monetary base ________ and reserves ________.
A) remains unchanged; decrease
B) remains unchanged; increase
C) increases; increase
D) increases; remain unchanged
39) A decrease in ________ leads to an equal ________ in the monetary base in the short run.
A) float; increase
B) float; decrease
C) Treasury deposits at the Fed; decrease
D) discount loans; increase
40) Suppose your payroll check is directly deposited to your checking account. Everything else held constant, total reserves in the banking system ________ and the monetary base ________.
A) remain unchanged; _remains unchanged
B) remain unchanged; increases
C) decrease; increases
D) decrease; decreases
41) In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, deposits in the banking system can potentially increase by
A)$10.
B)$100.
C)$100 times the reciprocal of the required reserve ratio.
D)$100 times the required reserve ratio.
42) If the required reserve ratio is 25 percent, the simple deposit multiplier is
A) 5.0.
B) 2.5.
C) 4.0.
D) 10.0.
43) In the simple deposit expansion model, a decline in checkable deposits of $1,000 when the required reserve ratio is equal to 10 percent implies that the Fed
A) sold $1,000 in government bonds.
B) sold $100 in government bonds.
C) purchased $1,000 in government bonds.
D) purchased $100 in government bonds.
44)The Fed can exert more precise control over ________ than it can over ________.
A) high-powered money; reserves
B) high-powered money; the monetary base
C) the monetary base; high-powered money
D) reserves; high-powered money
45) An increase in the monetary base that goes into currency is ________, while an increase that goes into deposits is ________.
A) multiplied; multiplied
B) not multiplied; multiplied
C) multiplied; not multiplied
D) not multiplied; not multiplied
46) If the required reserve ratio is 5 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1 money multiplier is
A) 2.5.
B) 2.72.
C) 2.3.
D) 0.551.
47) Everything else held constant, a decrease in the currency ratio causes the M1 money multiplier to _____ and the money supply to _____.
A)decrease; increase
B)increase; increase
C)decrease; decrease
D)increase; decrease
48) The excess reserves ratio is _____ related to expected deposit outflows, and is _____ related to the market interest rate.
A) negatively; negatively
B) negatively; positively
C) positively; negatively
D) positively; positively
49) The money supply is ________ related to the nonborrowed monetary base, and ________ related to the level of borrowed reserves.
A) positively; negatively
B) negatively; not
C) positively; positively
D) negatively; negatively
50) During the bank panics of the Great Depression the excess reserve ratio
A) increased sharply.
B) decreased sharply.
C) increased slightly.
D) decreased slightly.