Question 1

The purpose of Regulation Q was to:

Accepted Answer

Regulation Q was a federal regulation that prohibited banks from paying interest on checking accounts. This regulation was implemented to discourage consumers from constantly shifting their funds between banks in search of the best interest rates, which could destabilize the banking system.

Question 2

When the Federal Reserve was established in 1913, it was granted the authority to:
I. require all depository institutions to hold reserves.
II. inspect all deposit-taking institutions.
III. issue currency.

Accepted Answer

When the Federal Reserve was established in 1913, it was granted the authority to require all depository institutions to hold reserves (I), inspect all deposit-taking institutions (II), and issue currency (III). Therefore, all the choices are correct.

Question 3

The Reconstruction Finance Corporation:

Accepted Answer

The Reconstruction Finance Corporation was established in 1932 by the U.S. government to make loans to banks and buy their preferred stock in order to stimulate economic activity during the Great Depression.

Question 4

The original purpose of savings and loans was to:

Accepted Answer

The answer of The original purpose of savings and loans...

Question 5

The main problem with the banking system from 1864 to 1913 was that:

Accepted Answer

The main issue was that the money supply was not responsive to local economic changes, leading to financial instability and bank runs. The lack of a central banking system meant that banks could not adequately respond to the demand for money during economic fluctuations.

Question 6

The purpose of the local clearinghouses established by banks in the early 1900s was to:

Accepted Answer

The purpose of local clearinghouses established by banks in the early 1900s was to pool the resources of several local banks so that the clearinghouse could guarantee a member's deposits in case of a bank run. This was done to prevent bank failures and to maintain stability in the banking system. The clearinghouse acted as an intermediary between banks, facilitating the exchange of checks, and settling differences in accounts. The other options mentioned in the question are not relevant to the purpose of local clearinghouses.

Question 7

Before 1864 American banking was dominated by:

Accepted Answer

Before 1864, American banking was dominated by an unregulated system of state banks that issued their own currency, and there was little federal regulation.

Question 8

The Panic of 1907 began when:

Accepted Answer

The Panic of 1907 began when the Knickerbocker Trust failed on October 22, 1907. This failure triggered a chain reaction of bank runs and defaults, leading to a widespread financial crisis.

Question 9

When it was established in 1913, the Federal Reserve was NOT granted the authority to:

Accepted Answer

The Federal Reserve was not given the authority to prepare the federal budget.

Question 10

The bank runs in 1930, 1931, and 1933 were caused primarily by:

Accepted Answer

The bank runs during the early 1930s were largely due to sharp decreases in farm commodity prices, which led to widespread financial instability and loss of confidence in banks.

Question 11

Between 1864 and 1913, American banking was dominated by:

Accepted Answer

Between 1864 and 1913, American banking was dominated by a federally regulated system of national banks, as established by the National Banking Act of 1863. These national banks issued a uniform national currency and were chartered by the federal government, creating a more stable and centralized banking system.

Question 12

According to the Glass-Steagall Act of 1933:

Accepted Answer

The Glass-Steagall Act of 1933 separated commercial banking from investment banking, prohibiting commercial banks from engaging in the investment business, such as trading stocks and bonds.

Question 13

By 1933, banks were able to borrow from:
I. the Reconstruction Finance Corporation.
II. the Federal Reserve System.

Accepted Answer

By 1933, banks could borrow from both the Reconstruction Finance Corporation and the Federal Reserve System. The Reconstruction Finance Corporation was created in 1932 to provide financial assistance to banks, railroads, and other businesses during the Great Depression. The Federal Reserve System existed before the Depression and continued to lend money to banks in need during this time.

Question 14

The purpose of the bank holiday declared by Franklin Roosevelt in 1933 was to:

Accepted Answer

The bank holiday declared by Franklin Roosevelt in 1933 was to close all banks until regulators could determine how to solve the banking crisis. It was meant to give regulators time to establish which banks were solvent and which were not, and to enact reforms that would prevent future bank failures.

Question 15

Before the Panic of 1907, trusts:

Accepted Answer

Trusts refused to join the New York Clearinghouse because joining would have required them to hold higher cash reserves, which would have decreased their profits.

Question 16

The Glass-Steagall Act of 1933:

Accepted Answer

The Glass-Steagall Act of 1933 separated banks into two categories, commercial and investment, and prohibited commercial banks from engaging in investment banking activities. This was done to prevent another financial crisis like the one that occurred during the Great Depression.

Question 17

Trusts _____ than national banks.

Accepted Answer

Trusts historically had lower reserve requirements compared to national banks, allowing them to operate with less capital held in reserve.

Question 18

Savings and loans' difficulties began in the 1970s, when inflation _____ and interest rates _____.

Accepted Answer

Savings and loans' difficulties began in the 1970s, when inflation increased and interest rates increased.

Question 19

Many S&Ls failed in the 1980s mainly because:

Accepted Answer

Many S&Ls failed in the 1980s mainly because many of their risky real estate loans went bad. S&Ls invested heavily in real estate, and when property values plummeted, they faced massive losses on their loans.

Question 20

The Federal Reserve:

Accepted Answer

The Federal Reserve was established in 1913 as a response to the Panic of 1907, which highlighted the need for a more stable banking system in the United States. It is responsible for implementing and conducting monetary policy, regulating banks and other financial institutions, and maintaining the stability of the financial system.

Quiz 14: Money, Banking, and the Federal Reserve System