Download 4th Homework - Samuel Moon Jung

4th Homework
Money and Banking
1) Depositors lack of information about the quality of bank assets can lead to
A) bank panics.
B) bank booms.
C) sequencing.
D) asset transformation.
2) Depositors have a strong incentive to show up first to withdraw their funds during a
bank crisis because banks operate on a
A) last-in, first-out constraint.
B) sequential service constraint.
C) double-coincidence of wants constraint.
D) everyone-shares-equally constraint.
3) Because of asymmetric information, the failure of one bank can lead to runs on other
banks. This is the
A) too-big-to-fail effect.
B) moral hazard problem.
C) adverse selection problem.
D) contagion effect.
4) The contagion effect refers to the fact that
A) deposit insurance has eliminated the problem of bank failures.
B) bank runs involve only sound banks.
C) bank runs involve only insolvent banks.
D) the failure of one bank can hasten the failure of other banks.
5) To prevent bank runs and the consequent bank failures, the United States established
the ________ in 1934 to provide deposit insurance.
A) FDIC
B) SEC
C) Federal Reserve
D) ATM
6) 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.
7) Moral hazard is an important concern of insurance arrangements because the existence
of insurance
A) provides increased incentives for risk taking.
B) is a hindrance to efficient risk taking.
C) causes the private cost of the insured activity to increase.
D) creates an adverse selection problem but no moral hazard problem.
8) 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
9) 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
10) The too-big-to-fail policy
A) reduces moral hazard problems.
B) puts large banks at a competitive disadvantage in attracting large deposits.
C) treats large depositors of small banks inequitably when compared to depositors of
large banks.
D) allows small banks to take on more risk than large banks.
11) A major controversy involving the banking industry in its early years was
A) whether banks should both accept deposits and make loans or whether these functions
should be separated into different institutions.
B) whether the federal government or the states should charter banks.
C) what percent of deposits banks should hold as fractional reserves.
D) whether banks should be allowed to issue their own bank notes.
12) 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.
13) 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.
14) Which of the following is NOT an entity of the Federal Reserve System?
A) Federal Reserve Banks
B) The Comptroller of the Currency
C) The Board of Governors
D) The Federal Open Market Committee
15) Which of the following is an entity of the Federal Reserve System?
A) The U.S. Treasury Secretary
B) The FOMC
C) The Comptroller of the Currency
D) The FDIC
16) The three largest Federal Reserve banks (New York, Chicago, and San Francisco)
combined hold more than ________ percent of the assets of the Federal Reserve System.
A) 25
B) 33
C) 50
D) 67
17) Each Federal Reserve bank has nine directors. Of these ________ are appointed by
the member banks and ________ are appointed by the Board of Governors.
A) three; six
B) four; five
C) five; four
D) six; three
18) The nine directors of the Federal Reserve Banks are split into three categories:
________ are professional bankers, ________ are leaders from industry, and ________
are to represent the public interest and are not allowed to be officers, employees, or
stockholders of banks.
A) 5; 2; 2
B) 2; 5; 2
C) 4; 2; 3
D) 3; 3; 3
19) The Federal Open Market Committee's "balance of risks" is an assessment of
whether, in the future, its primary concern will be
A) higher exchange rates or higher unemployment.
B) higher inflation or a stronger economy.
C) higher inflation or a weaker economy.
D) lower inflation or a stronger economy.
20) The government agency that oversees the banking system and is responsible for the
conduct of monetary policy in the United States is
A) the Federal Reserve System.
B) the United States Treasury.
C) the U.S. Gold Commission.
D) the House of Representatives.
21) The monetary base consists of
A) currency in circulation and Federal Reserve notes.
B) currency in circulation and the U.S. Treasury's monetary liabilities.
C) currency in circulation and reserves.
D) reserves and Federal Reserve Notes.
22) Excess reserves are equal to
A) total reserves minus discount loans.
B) vault cash plus deposits with Federal Reserve banks minus required reserves.
C) vault cash minus required reserves.
D) deposits with the Fed minus vault cash plus required reserves.
23) Total Reserves minus vault cash equals
A) bank deposits with the Fed.
B) excess reserves.
C) required reserves.
D) currency in circulation.
24) The monetary base minus currency in circulation equals
A) reserves.
B) the borrowed base.
C) the nonborrowed base.
D) discount loans.
25) When the Federal Reserve purchases a government bond from a bank, 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
26) When the Federal Reserve sells a government bond to a bank, 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
27) When the Federal Reserve calls in a discount loan from a bank, the monetary base
________ and reserves ________.
A) remains unchanged; decrease
B) remains unchanged; increase
C) decreases; decrease
D) decreases; remains unchanged
28) There are two ways in which the Fed can provide additional reserves to the banking
system: it can ________ government bonds or it can ________ discount loans to
commercial banks.
A) sell; extend
B) sell; call in
C) purchase; extend
D) purchase; call in
29) If reserves in the banking system increase by $100, then checkable deposits will
increase by $1000 in the simple model of deposit creation when the required reserve ratio
is
A) 0.01.
B) 0.10.
C) 0.05.
D) 0.20.
30) If reserves in the banking system increase by $100, then checkable deposits will
increase by $500 in the simple model of deposit creation when the required reserve ratio
is
A) 0.01.
B) 0.10.
C) 0.05.
D) 0.20
31) A simple deposit multiplier equal to four implies a required reserve ratio equal to
A) 100 percent.
B) 50 percent.
C) 25 percent.
D) 0 percent.
32) If a bank has excess reserves of $10,000 and demand deposit liabilities of $80,000,
and if the reserve requirement is 20 percent, then the bank has actual reserves of
A) $16,000.
B) $20,000.
C) $26,000.
D) $36,000.
33) Everything else held constant, an increase in currency holdings will cause
A) the money supply to rise.
B) the money supply to remain constant.
C) the money supply to fall.
D) checkable deposits to rise.
34) 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