SparkNotes: Banking: Test

1. Which of the following do banks not do?

(A) Print money

(B) Make loans

(C) Take deposits

(D) Invest money

2. When you give money to a bank, you are what?

(A) A borrower

(B) A lender

(C) A depositor

(D) A withdrawer

3. How much does the FDIC insure individual accounts for?

(A) $25,000

(B) $50,000

(C) $75,000

(D) $100,000

4. What does the FDIC stand for?

(A) Federal Deposit Insurance Corporation

(B) Federal Detection of Illegal Companies

(C) Final Deposit Insurance Corporation

(D) First Deposit Interest Company

5. What is the primary role of the FDIC?

(A) Earn interest

(B) Provide protection

(C) Make deposits

(D) Make loans

6. What role does the board of directors of a bank play?

(A) Make loans

(B) Make deposits

(C) Oversee bank activities

(D) Handle withdrawals

7. Individual banks issue

(A) summons and subpoenas.

(B) coherent discussions of macroeconomics.

(C) lingerie catalogues.

(D) checks and credit cards.

8. When you deposit money in a bank, where does it eventually go?

(A) Federal reserve branch

(B) The vault

(C) Nowhere

(D) In the cash box

9. Which of the following is not a primary use for deposits?

(A) Loans

(B) Payment of employees

(C) Investment

(D) Withdrawals

10. Where do banks get loans?

(A) The Fed headquarters

(B) Customers

(C) Branches of the Fed

(D) The government

11. What is the principle on a loan?

(A) The interest paid

(B) The interest unpaid

(C) The total amount paid

(D) The initial amount loaned

12. When a bank uses 100% reserve banking, which of the following remains unaffected?

(A) The money supply

(B) The interest rate

(C) Customers

(D) Loans

13. When a bank uses fractional reserve banking, which of the following remains unaffected?

(A) The money supply

(B) The price level

(C) Customers

(D) Loans

14. The percentage of deposits that banks are required to hold in reserve is called the

(A) interest rate

(B) federal funds rate

(C) reserve rate

(D) loan rate

15. What do you call deposits that are covered by cash?

(A) Paper deposits

(B) Nominal deposits

(C) Cash deposits

(D) Real deposits

16. What do you call deposits that are covered by loans?

(A) Paper deposits

(B) Nominal deposits

(C) Cash deposits

(D) Real deposits

17. What are the two items listed on a balance sheet?

(A) Interest and principle

(B) Assets and liabilities

(C) Interest and assets

(D) Principle and bonds

18. What is the equation for the money multiplier?

(A) 1 / (interest rate)

(B) 5 / (reserve requirement)

(C) 1 / (reserve requirement)

(D) 5 / (interest rate)

19. What is the total change in the money supply from a $10,000 initial deposit if the reserve rate is 50%?

(A) $10,000

(B) $20,000

(C) $40,000

(D) $50,000

20. Who primarily controls the money supply?

(A) The government

(B) The Fed

(C) The public

(D) Private companies

21. How does the public have a small degree of control over the money supply?

(A) Through investments

(B) Through cash

(C) Through deposits

(D) Through credit cards

22. Which of the following is not a method used by the Fed to control the money supply?

(A) Open market operations

(B) The federal funds interest rate

(C) The reserve requirement

(D) The price level

23. What does the Fed do when it performs open market operations?

(A) Buys and sells bonds

(B) Manipulates interest rates

(C) Prints currency

(D) Makes loans

24. What does the Fed do when it manipulates the federal funds interest rate?

(A) Affects deposits

(B) Affects loans

(C) Affects withdrawals

(D) Affects credit card balances

25. What does the Fed do when it manipulates the reserve requirement?

(A) Affects deposits

(B) Affects withdrawals

(C) Affects loans

(D) Affects credit card balances

26. What is the effect of an increase in the federal funds interest rate on the money supply?

(A) Increase

(B) Decrease

(C) Need more information

(D) No change

27. What is the effect of an increase in the reserve requirement on the money supply?

(A) Increase

(B) Decrease

(C) Need more information

(D) No change

28. What is the effect of the Fed selling bonds on the money supply?

(A) Increase

(B) Decrease

(C) Need more information

(D) No change

29. What is the effect of the Fed buying bonds on the money supply?

(A) No change

(B) Need more information

(C) Increase

(D) Decrease

30. Which of the following is not an open market operation?

(A) Buying bonds

(B) Selling bonds

(C) Trading bonds

(D) Changing interest rates

31. Who issues the bonds sold by the Fed?

(A) The government

(B) The Fed

(C) Public companies

(D) Private investors

32. Who back the bonds sold by the Fed?

(A) The Fed

(B) The treasury

(C) The FBI

(D) Local banks

33. Who backs the dollar?

(A) The Fed

(B) Private companies

(C) The treasury

(D) The government

34. What type of money is the dollar?

(A) Commodity

(B) Real

(C) Nominal

(D) Fiat

35. How often does the Fed perform open market operations?

(A) Daily

(B) Weekly

(C) Monthly

(D) Annually

36. What is the most important theoretical concept behind the effectiveness of fiscal policy?

(A) The interest rate

(B) The money multiplier

(C) The price level

(D) The credit card

37. If the Fed increases the federal funds interest rate, banks are more likely to do what?

(A) Hold fewer reserves

(B) Hold no reserves

(C) Hold more reserves

(D) Hold 100% reserves

38. What body or agency prints money?

(A) The Fed

(B) The public

(C) The private sector

(D) The treasury

39. Which of the following is not directly controlled under the US central banking system?

(A) The price level

(B) The money supply

(C) The interest rate

(D) The money demand

40. Which of the following does not provide safety to the US banking system?

(A) The FDIC

(B) The credit card

(C) The government

(D) The Fed

41. Which of the following do individual banks not directly regulate?

(A) Risk

(B) Loans

(C) Bonds

(D) Interest rates

42. What is the most powerful body in the control of the money supply?

(A) The government

(B) The public

(C) The police

(D) The Fed

43. Which of the following best describes how banks make loans?

(A) Without limitation

(B) Reasonably, depending upon risk

(C) Reasonably, not depending upon risk

(D) Blindly with equal offers to all customers

44. What is the primary source of income for banks?

(A) Fees

(B) Deposits

(C) Loans

(D) FDIC

45. When a bank cannot cover money demanded by depositors, where does it go to get a loan?

(A) Another public bank

(B) Individuals

(C) The mob

(D) Fed branches

46. Which of the following best describes bank systems?

(A) Regulated and safe

(B) Unregulated and unsafe

(C) Regulated and unsafe

(D) Unregulated and safe

47. Why is the US banking system central?

(A) The public has the most control

(B) The Fed has the most control

(C) The customers have the most control

(D) The government has the most control