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This quiz consists of 5 multiple choice and 5 short answer questions through Section I. What Creature Is This? Chapter 3 Protectors of the Public.

Multiple Choice Questions

1. The Federal Reserve System was designed to control what element of member banks?
(a) The Federal Reserve System was designed to control how much reserve cash a bank can invest in its expansion.
(b) The Federal Reserve System was designed to control a bank's ability to make loans.
(c) The Federal Reserve System was designed to control a bank's cash flow.
(d) The Federal Reserve System was designed to control how much reserve cash any member bank had to keep on hand.

2. Prior to the establishment of the Federal Reserves, what caused massive bank failures?
(a) US bonds were devalued by the Federal authorities.
(b) The Great Depression proved to be an unbearable strain on the banking system.
(c) There were public runs on the banks and currency drains from other banks demanding payments.
(d) Foreign debtors demanded the full repayment of loands.

3. What is the definition of a public run on a bank?
(a) A public run was when many depositors demanded their cash from a bank and wiped out the bank's reserves.
(b) A public run occurs when the Federal government takes ownership of a bank.
(c) A public run is when the government puts a bank up for sale.
(d) A public run occurs when a bank runs out of cash.

4. The nationalization of banks has occurred during conservative or liberal administrations?
(a) The nationalization of banks occurred during conservative as well as liberal administrations.
(b) The nationalization of banks occurred during liberal administrations.
(c) The nationalization of banks occurred during conservative administrations.
(d) The nationalization of banks occurred when there is equal balance among all branches of government.

5. What do many people feel was the real reason behind the establishment of the Federal Reserve?
(a) Many feel that the real reason for creating the Federal Reserve was to keep the rich from becoming too powerful.
(b) Many feel that the real reason for creating the Federal Reserve was to keep rich people in power.
(c) Many feel that the real reason for creating the Federal Reserve was to keep the middle class from failing.
(d) Many feel that the real reason for creating the Federal Reserve was to keep poor people from turning to crime.

Short Answer Questions

1. The author made what sports analogy to describe the problems with the banking system?

2. Why did banks make risky loans?

3. If the debtors stopped paying banks altogether, what action would the Federal Reserve System take?

4. What importance does political ideology have on the nationalization of banks?

5. What was the main cause of the economic meltdown in 2008?

(see the answer key)

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