Question 1

The central bank for the United States is

Accepted Answer

The Federal Reserve System is the central bank of the United States, created in 1913. It is responsible for conducting monetary policy, supervising and regulating financial institutions, and providing payment services to the government and financial institutions. The other options are either commercial banks or not related to the central bank.

Question 2

Suppose you and a friend are shopping at a swap meet and you borrow $500 from your friend to pay for a guitar that you see there.This is an example of

Accepted Answer

The answer of Suppose you and a friend are shopping...

Question 3

Financial institutions that receive most of their funds from the savings of the public are

Accepted Answer

Thrift institutions, also known as savings and loan associations, are financial institutions that primarily receive their funds from the public's savings deposits. These institutions focus on providing mortgages and other loans to their customers, and they traditionally offered higher interest rates on savings deposits compared to commercial banks.

Question 4

Explain the role of financial intermediation.

Accepted Answer

The answer of Explain the role of financial intermediation....

Question 5

Who appoints the Federal Reserve System's Board of Governors?

Accepted Answer

The Board of Governors of the Federal Reserve System is appointed by the President of the United States and confirmed by the Senate. The Secretary of the Treasury and the Speaker of the House of Representatives do not have the authority to appoint members of the Board. The American Banking Association also does not have the authority to appoint members of the Board.

Question 6

Which of the following is true of the Federal Reserve System? I.It was established in the early 1980s.
II.It serves as the central bank of the United States.

Accepted Answer

The Federal Reserve System serves as the central bank of the United States and was established in 1913, not in the early 1980s. Therefore, only statement II is true.

Question 7

The possibility that a borrower might engage in riskier behavior after a loan is made is called

Accepted Answer

Moral hazard refers to the possibility that a borrower may engage in riskier behavior after a loan is made because they are not fully responsible for the consequences. For example, if someone takes out a loan to start a business and the business fails, they may not feel as responsible for the loss because they have already received the loan funds. This can lead to riskier behavior and potentially defaulting on the loan. Adverse selection refers to the situation where borrowers with higher risk are more likely to apply for and receive loans, while liability aversion refers to individuals avoiding risky behavior because they do not want to bear the financial liability that comes with potential losses. The risk of default refers to the possibility that a borrower may not be able to pay back the loan.

Question 8

The Board of Governors of the Federal Reserve System is

Accepted Answer

The Board of Governors of the Federal Reserve System is composed of seven members who are appointed by the President and approved by the Senate. This is stated in the Federal Reserve Act of 1913.

Question 9

The Federal Open Market Committee (FOMC)

Accepted Answer

The Federal Open Market Committee (FOMC) is responsible for influencing the future growth of the money supply through decisions about interest rates, open market operations, and other monetary policy tools. The FOMC does not determine tax policy, oversee transactions on the stock market, or lend to individual customers (especially not the least credit-worthy ones).

Question 10

The function that banks perform by obtaining funds from households,businesses,and governments and lending these funds to other households,businesses,and governments is known as

Accepted Answer

The function described is an example of financial intermediation, which is the process of intermediaries (like banks) acting as middlemen to transfer funds between borrowers and lenders.

Question 11

Let us suppose that you apply for a loan with a bank.You tell the bank that you are going to remodel your kitchen,but after you get the loan you go to Las Vegas to gamble with the money.Your behavior is an example of

Accepted Answer

This behavior is an example of moral hazard, which refers to the situation where a borrower takes on excessive risk because they have little or no personal responsibility for repaying the loan. In this case, the borrower used the loan for a different purpose than stated, and is now at risk of not being able to repay the loan due to their gambling losses in Las Vegas.

Question 12

When you use a debit card to purchase a pair of jeans,you are

Accepted Answer

When you use a debit card to purchase a pair of jeans, you are giving your bank an instruction to transfer funds directly from your bank account to the store's bank account. There is no loan involved, and no repurchase agreement between your bank and the store.

Question 13

Monetary policy actions are determined by the

Accepted Answer

Monetary policy decisions in the United States are made by the Federal Open Market Committee (FOMC) which is composed of the Board of Governors of the Federal Reserve System and five Reserve Bank presidents. The New York Federal Reserve Bank plays a role in implementing these policies, but it does not make the decisions on its own. The President of the United States and the U.S. Congress also do not have a direct role in determining monetary policy.

Question 14

Which of the following is NOT a reason that people tend to deposit their funds with banks rather than lend their funds directly to other individuals?

Accepted Answer

Depositing funds with banks provides individuals with the ability to withdraw their funds at any time, thus avoiding liquidity problems. Adverse selection, asymmetric information, and moral hazard problems are all significant risks associated with lending directly to other individuals.

Question 15

Which of the following describes a moral hazard problem?

Accepted Answer

A moral hazard problem is a post-contractual problem that arises when one party has more information than the other party and uses this information to act in an opportunistic manner. This can lead to a situation where one party takes excessive risks, knowing that the other party will be forced to bear the costs if things go wrong. For example, a borrower might take out a loan and then use the money to engage in risky investments. If the investments pay off, the borrower benefits, but if they fail, the lender is left holding the bag. This creates a moral hazard problem, as the borrower is incentivized to take excessive risks because they are not fully exposed to the downside.

Question 16

The part of the Federal Reserve System that determines monetary policy actions is the

Accepted Answer

The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve System that determines monetary policy actions, such as setting interest rates and adjusting the money supply. The other options mentioned have different roles within the Federal Reserve System.

Question 17

Adverse selection refers to the

Accepted Answer

The answer of Adverse selection refers to the
...

Question 18

The current chair of the Board of Governors of the Federal Reserve is

Accepted Answer

Ben Bernanke is the current chair of the Board of Governors of the Federal Reserve. Alan Greenspan served as the chairman before him, but has since retired. John Snow and Henry Paulson have both served as Secretary of the Treasury, but have not held the position of chair of the Federal Reserve.

Question 19

Suppose you borrow $500 from your bank to pay for a guitar.This is an example of

Accepted Answer

Borrowing money from a bank is an example of indirect financing, as the bank serves as an intermediary between the borrower and the ultimate source of funds (such as depositors or other investors). Direct financing would involve the borrower directly obtaining funds from investors, without the involvement of an intermediary. Moral hazard and transaction costs are not relevant to this scenario.

Question 20

When you make a purchase at a retail store by giving your bank an instruction to transfer funds directly from your bank account to the store's bank account,you have most likely made the purchase using

Accepted Answer

When you transfer funds directly from your bank account to the store's bank account, it is typically done using a debit card. This is because the purchase is being made with your own funds and not with borrowed money, and the transaction is processed electronically without the need for physical cash.

Quiz 15: Money, banking, and Central Banking