EPF Unit 2

What is the principal way that banks make money?

• 1. They loan out money at a higher interest rate than they pay to depositors.

• 1. They loan out money at a lower interest rate than they charge

     1. depositors.

• hey charge a fee to keep your money safe.

• 1. They print money.

When you deposit your money in a bank, where does the majority of that money go?

• 1. Banks store it in the vault.

• 1. Banks send it to headquarters.

• Banks loan it out.

• Banks give it to the government to keep.

In the United States, who is responsible for monetary policy?

• 1. Congress

• The Federal Government

• 1. The Federal Reserve

• 1. The Federal Deposit Insurance Corporation 

The Federal Deposit Insurance Corporation helps to prevent what?

• Bank runs

• Moral hazard

• Asset bubbles

• Inflation

Which of the following goals is most consistent with contractionary monetary policy?

• Decrease unemployment

• Increase the money supply

• Decrease inflation

• Stimulate the economy

Expansionary monetary policy is most likely associated with:

• Increased interest rates

• Decreased interest rates

• Bank runs

• Tax increases

Which of the following is true about interest rates?

• The Federal Reserve sets consumer interest rates in the US.

• 1. Banks pay an interest rate to the Federal Reserve to store reserves with the Fed.

• 1. Consumers prefer higher interest rates on personal loans. 

• 1. Banks adjust the interest rates they charge consumers.

Which bank is most likely to face a bank run?

• 1. Bank A announces a new savings account with a higher interest rate.

• 1. Bank B announces severe losses on bank investments in the last year.

• 1. Bank C announces a partnership with another bank to provide increased no-fee ATM access.

• 1. Bank D announces a rebranding campaign to avoid sounding like an improper fraction. 

Which of the following is an example of a moral hazard in banking?

• 1. Bankers may be tempted to falsify accounts to maintain sales records.

• 1. Female bankers may face a toxic culture when working with the FDIC.  

• 1. Banks may be more likely to invest in risky assets knowing that the Federal Reserve will bail them out. 

• 1. Banks may be likely to make fewer loans in high-income areas because they need to pay FDIC insurance. 

In which of the following scenarios is the Fed most likely to lower their administered rates, including lowering the IORB?

• 1. Government spending surges.

• 1. Consumer spending is at an all time high.

• 1. The latest data shows record low unemployment rates.

• 1. GDP growth has been negative for 3 consecutive quarters.