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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 keep a healthy cash flow.
(c) The Federal Reserve helped banks keep individuals, businesses and entire countries perpetually in debt and working mostly for the banks.
(d) The Federal Reserve helped banks to stay in operation.

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

3. Why has bank fraud never been eliminated?
(a) The Federal Reserve tried to institute European standards which led to the perpetuation of fraud.
(b) Financial experts were taught that the way banking worked in the US was the only way it could work, and so the fraud kept on going.
(c) The Federal Reserve was influenced by lobbyists who advocated fraudulent regulations.
(d) The Federal Reserve was controlled by outside political interests that fostered fraud.

4. Why did banks make risky loans?
(a) Banks are required by the Federal Reserve to make a certain percentage of risky loans.
(b) The banks had incentive in terms of high profits for granting mortgages to home buyers who would not be able to pay the loans off, but who might be able to make interest payments.
(c) The US Congress passed legislation that required banks to make ten percent of their loans to risky borrowers.
(d) Banks did not thoroughly check out the risk factor of some borrowers.

5. 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 how much reserve cash any member bank had to keep on hand.
(c) The Federal Reserve System was designed to control a bank's ability to make loans.
(d) The Federal Reserve System was designed to control a bank's cash flow.

Short Answer Questions

1. How does a currency drain occur within the banking system?

2. What is the definition of a public run on a bank?

3. When the entire banking system failed, what did the Federal government turn to to bolster the failed back up system?

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

5. What do many people feel was the real reason behind the establishment of the Federal Reserve?

(see the answer key)

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