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This quiz consists of 5 multiple choice and 5 short answer questions through Section I. What Creature Is This? Chapter 2 The Name of the Game Is Bailout.

Multiple Choice Questions

1. What did the Federal Reserve System help banks to do?
(a) The Federal Reserve helped banks by making special laws for them.
(b) The Federal Reserve helped banks to stay in operation.
(c) The Federal Reserve helped banks keep a healthy cash flow.
(d) The Federal Reserve helped banks keep individuals, businesses and entire countries perpetually in debt and working mostly for the banks.

2. What economic group is hit the hardest by an inflation?
(a) Only the very wealthiest people are hurt by inflation.
(b) Only the middle class is hurt by inflation.
(c) Inflation has been a problem for the rich and poor alike, although it hit the chronically poor harder than anyone.
(d) Inflation damages only the very poor in a society.

3. What happened when a debtor defaulted on a loan?
(a) When a debtor defaulted on a loan, he would stop making payments.
(b) When a debtor defaulted on a loan, he would first ask for more time to pay.
(c) When a debtor defaulted on a loan, he would ask the government for a guaranteed loan.
(d) When a debtor defaulted on a loan, he would ask loan payments be waived.

4. What type of person was Paul Moritz Warburg?
(a) Paul Moritz Warburg was a mild-mannered, shy and sensitive man.
(b) Paul Moritz Warburg was a rude and greedy man.
(c) Paul Moritz Warburg was an elitist who was not concerned with the concerns of the poor.
(d) Paul Moritz Warburg was a stubborn man concerned only with the wealth of the upper class.

5. When the entire banking system failed, what did the Federal government turn to to bolster the failed back up system?
(a) When the whole banking system collapsed, foreign investments went into bolstering the failed system back up.
(b) When the whole banking system collapsed, money from newly issued government bonds went into bolstering the failed system back up.
(c) When the whole banking system collapsed, taxpayer money went into bolstering the failed system back up.
(d) When the whole banking system collapsed, the debt ceiling was raised to bolster the failed system back up.

Short Answer Questions

1. What was the impact of the creation of new money on the currency?

2. What do some feel was the reason for establishing the Federal Reserve?

3. Why did banks make risky loans?

4. What did the U.S. government do to support banks?

5. What has caused the economy's boom-bust cycle?

(see the answer key)

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