Money, Banking, and Finance PLATO Global Government and Economics Mastery Test 1. Money is useful to people because it is: a. a medium of exchange b. prestigious c. nice to look at d. something that makes you feel good 2. Gold, olive oil, and cattle have been used as money. This type of money is: a. representative money b. consumable money c. commodity money d. flat money 3. The paper currency in the US has value because: a. it is useful b. it represents precious metals c. the federal government says it has value 4. The first Bank of the United States was: a. the first bank in NY b. the first national bank of the US government c. the largest bank in the US in the 1900s d. the first bank established in the US 5. When was the Federal Reserve System established? a. 1907 b. 1913 c. 1933 d. 1970 6. Following the Great Depression, the Federal Reserve: a. imposed restrictions on the interest rates that banks could pay depositors b. required that banks should lend money to anyone who had a home c. let banks set their own interest rates paid to depositors d. let banks charge borrowers whatever they wanted 7. The Federal Reserve System is in charge of: a. monetary policy b. fiscal policy c. tax policy
8. Which of the following banking activities was prohibited to commercial banks by the Glass-Steagall Act of 1933? a. underwriting stocks b. issuing credit cards c. saving money d. giving loans and mortgages 9. Credit risk is the risk that the borrower will not: a. receive the money from the lender b. repay all the money owed c. give the leader all the credit d. be approved for a loan 10. A financial intermediary a. facilities the transfer of funds from savers to borrowers b. helps a company get out of bankruptcy c. advises you on how to spend your money d. advises investors on how best to use their borrowed funds 11. Companies raise funds to expand their business by: a. selling stock shares to the public b. selling bonds to the public c. getting bank loans 12. Liquidity risk is: a. the chance that investors will not be able to turn investments back into cash quickly enough to meet their financial needs b. the chance that investors will never be able to turn investments back into cash c. the chance that borrowers will not be able to repay their loan d. the chance that investors will not have enough investments 13. The government of the United States borrows most of the money it needs by: a. taking loans from banks b. selling Treasury Bills and Treasury bonds c. issuing stock d. collecting taxes 14. Inflation risk is the prospect of: a. inflation reducing the value of investors financial assets b. inflation increasing the value of investors assets c. falling asset values d. rising asset values
15. Yield-to-maturity is: a. the proceeds from selling a bond b. the annual return on a bond held to maturity c. what investors pay to buy a bond d. the interest paid by the bond multiplied by its price 16. Credit Unions: a. provide services to businesses b. issue credit cards c. are fairly small and specialize in home mortgages and car loans d. make loans to businesses 17. Finance companies a. make loans to consumers b. are fairly small c. make loans to businesses 18. The Federal Deposit Insurance Corporation (FDIC): a. insures customer deposits in a bank fails b. insures banks if a borrower does not repay the loan c. insures homeowners against natural disasters 19. M1: a. is the broadest measure of the money supply b. represents money that people have easy and immediate access to c. consists of assets that are not liquid 20. A prospectus: a. is part of a loan application b. is part of a company s annual report c. provides potential investors with information on the performance of mutual fund portfolios d. is another name for a mortgage 21. Money markets are markets where: a. securities with less than a year to maturity are traded b. securities with more than a year to maturity are traded c. stocks are traded d. foreign currency is traded
22. Capital markets are markets where: a. securities with less than a year to maturity are traded b. securities with more than a year to maturity are traded c. stocks are traded d. the government sells Treasury Bills 23. Diversification is an investment strategy to: a. reduce the risk by investing in precious metals b. reduce risk by spreading investments among several assets c. increase risk by buying junk bonds d. only buy stock in a well-known company 24. if a country s money loses its function as a store of value: a. people will no longer hold their savings in that country b. people will trade the money for alternative foreign currencies c. people will buy precious metals 25. The expiration of the charter of the first Bank of the United States in 1811 resulted in: a. bankruptcy for the government of the US b. currencies that lost value c. more regulation of state banks 26. The Panic of 1907 was caused by: a. the First World War b. the continuing problems of the nation s banking system because state-chartered banks did not have enough gold to exchange for the paper money they were issued c. banks without adequate reserves to finance the government deficit d. too much regulation of the banking system 27. Which of the following factors worsened the effects of the Great Depression in 1933? a. massive bank failures b. the beginning of the Second World War c. the beginning of the First World War d. the rise of the Naze party in Germany 28. The Glass-Steagall Act passed by Congress in 1933: a. prohibited commercial banks from underwriting stocks and bonds b. required banks to purchase stock c. created the Federal Reserve System d. regulated the glass industry
29. An investor will purchase bonds that are rated AAA because they: a. are very low risk debt securities b. are very high risk debt securities c. pay higher yields than junk bonds d. are short-term investments 30. Banks make a profit by: a. making loans at a higher interest rate than it costs them to obtain the money b. charging fees for their services c. investing in government securities paying a higher interest rate than they pay their depositors 31. The late 1980s savings and loan crisis resulted primarily from: a. deregulation in a high interest rate environment b. poor management c. depositors being unable to withdraw their money 32. The repeal of the Glass-Steagall Act by Congress in 1999: a. paved the way for banks to sell financial assets such as stocks and bonds b. allowed banks to issue credit cards c. put an end to the gold standard d. cause a stock market bubble 33. John wants to invest his savings in high liquidity investments. Which of the following financial assets serve this financial goal? a. stocks b. bonds c. money market funds d. 3-year-CDs 34. Jamaal wants to diversify his investments. Which of the following investments should Jamaal invest in to best serve this financial goal? a. only stocks b. a portfolio of stocks, bonds, and precious metals c. only precious metals d. only bonds 35. An increase in savings: a. provides more funds for investment b. reduces the money supply c. increases current consumption d. increases interest rates
36. An increase in investment: a. lowers interest rates b. increases current consumption c. expands the productive capacity of the economy d. leads to inflation 37. James has purchased a 10-year bond that pays a $50 coupon. If interest rates go up, a. the bond price will go up b. the bond price will go down c. the bond coupon will go up d. the bond coupon will go down 38. Increasing and decreasing the money supply through monetary policy is generally done by: a. the Federal Reserve b. Congress c. the President d. the Federal Trade Commission 39. When the Federal Reserve puts money into the banking system: a. short-term interest rates rise b. short-term interest rates fall c. long-term interest rates rise d. long-term interest rates fall 40. Tanyika needs a loan to buy furniture for her house. She can get a long from all the following EXCEPT: a. a bank b. the Federal Reserve c. a finance company d. a credit union 41. If Rosa expects interest rates to fall for the next 10 years, she should invest her money in: a. a one-year CD b. a money market account c. 10-year bonds d. Treasury Bills 42. If Ted wants to buy a house and believes that interest rates will rise, he should: a. apply for a fixed-rate mortgage b. apply for an adjustable-rate mortgage c. use his credit union d. wait until a better time
43. In 1791, the US Congress created the Bank of America. The creation of the bank was part of a three-part plan to strengthen the US economy. Who was responsible for presenting the plan to Congress? a. Thomas Jefferson b. George Washington c. Alexander Hamilton d. Andrew Jackson 44. In 1791, the conflict over the Bank of the United States led to the foundation of two rival political parties. These two parties were the: a. Hamiltonian and Jeffersonian Parties b. Democratic and Republican Parties c. Democratic-Republican and Anti-Federalist Parties d. Federalist and Democratic-Republican Parties 45. During the 1800s, the nation s supply of currency was tied to its national reserves of either gold or silver. In 1900, an act was passed by Congress that would set the standard by which US currency is valued. This standard was set by the: a. Gold Standard Act b. Bland-Allison Act c. Federal Reserve Act d. Silver Standard Act 46. In 1913, Congress passed the Federal Reserve Act. The purpose of this act was to: a. allow the states to print currency b. reserve the right of the states to control the supply of money transferred between the state and federal banks c. make the federal government responsible for the regulation of interest rates and the supply of money d. set gold and silver as the standard by which US currency would be valued 47. A large bailout of savings and loans institutions became necessary in 1990 when it was discovered that nearly 2,000 of them were insolvent and facing closure. One of the causes of this crisis was the: a. reckless financial speculation following the bank deregulation of the 1980s b. centralization of banks as a result of the Federal Reserve Act passed in 1913 c. over-regulation of savings and loan institutions during the 1930s d. deep recession and high unemployment rates of the 1980s