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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. Why did banks make risky loans?
(a) Banks did not thoroughly check out the risk factor of some borrowers.
(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 are required by the Federal Reserve to make a certain percentage of risky loans.

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

3. Why was the "Federal Reserve System," so named?
(a) The "Federal Reserve System" was so named because its offices were not state run.
(b) The "Federal Reserve System" was so named so that people would know that it was part of the Federal government.
(c) The "Federal Reserve System" was so named so that people would think it was part of the Federal government.
(d) The "Federal Reserve System" was so named so that people would have respect for it.

4. Many people feel that the economic system has been rigged to favor what group of people?
(a) People have realized, at least a little bit, that our economic system had been rigged somewhere in the past to favor the middle classes by stealing from the rich and poor classes.
(b) People have realized, at least a little bit, that our economic system had been rigged somewhere in the past to favor the poor by stealing from the rich and middle classes.
(c) People have realized, at least a little bit, that our economic system had been rigged somewhere in the past to favor the rich by stealing from the government revenues.
(d) People have realized, at least a little bit, that our economic system had been rigged somewhere in the past to favor the rich by stealing from the poor and middle classes.

5. Who does the Federal Reserve depend on to bail out the country in times of economic collapse?
(a) The Federal Reserve turns to the taxpayer to bail out the country in times of economic collapse.
(b) The Federal Reserve turns to the banks to bail out the country in times of economic collapse.
(c) The Federal Reserve turns to Congress to bail out the country in times of economic collapse.
(d) The Federal Reserve turns to the foreign investors to bail out the country in times of economic collapse.

Short Answer Questions

1. What was the location of the meeting where the concept of the Federal Reserve was developed?

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

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

4. Why did banks ask for interest-only payments?

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

(see the answer key)

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