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This test consists of 15 multiple choice questions and 5 short answer questions.

Multiple Choice Questions

1. In what year was First Pennsylvania Bank bailed out?
(a) First Pennsylvania Bank was bailed out in 1972.
(b) First Pennsylvania Bank was bailed out in 1975.
(c) First Pennsylvania Bank was bailed out in 1973.
(d) First Pennsylvania Bank was bailed out in 1980.

2. What risky loan activities have banks participated in?
(a) Banks loaned depositors' money out to risky debtors who would likely not be able to pay the loans off.
(b) Banks loaned depositors' money to foreign governments who refused to repay the loans.
(c) Banks loaned depositors' money out to poor people during the Great Depression.
(d) Banks loaned depositors' money out to to the US government in times of economic downturns.

3. The banking system before the Federal Reserve System allowed banks to lend out what percentage of money against one percent in deposits.
(a) The banking system before the Federal Reserve System allowed banks to lend out more money than they held in deposits, up to ninety-nine percent loaned out with only one percent in deposits.
(b) The banking system before the Federal Reserve System allowed banks to lend out more money than they held in deposits, up to fithy percent loaned out with only one percent in deposits.
(c) The banking system before the Federal Reserve System allowed banks to lend out more money than they held in deposits, up to sixty percent loaned out with only one percent in deposits.
(d) The banking system before the Federal Reserve System allowed banks to lend out more money than they held in deposits, up to twenty percent loaned out with only one percent in deposits.

4. 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.

5. What was the location of the meeting where the concept of the Federal Reserve was developed?
(a) The concept of the Federal Reserve was developed in the Hawaiin Islands.
(b) The concept of the Federal Reserve was developed on Alcatraz Island.
(c) The concept of the Federal Reserve was developed on Long Island.
(d) The concept of the Federal Reserve was developed on Jekyll Island.

6. Why was housing becoming difficult to obtain in the 1980s?
(a) Congressional actions began to place restrictive regulations on house buying.
(b) Wages were not keeping up with inflation, which made housing harder to obtain.
(c) The cost of housing was sky-rocketing.
(d) The construction industry was experiencing labor conflicts.

7. When did the American public become interested in socialism as an alternative to capitalism?
(a) After LBJ's Great Society was enacted, the American public became interested in socialism as an alternative to capitalism.
(b) During the Great Depression of the 1930s, the American public became interested in socialism as an alternative to capitalism.
(c) During the Cold War, the American public became interested in socialism as an alternative to capitalism.
(d) After World War II, the American public became interested in socialism as an alternative to capitalism.

8. What is the main transport of both Amtrak and Conrail?
(a) Amtrak had been the passenger side of Penn Central, while Conrail had been the freight side.
(b) Amtrak had been the freight side of Penn Central, while Conrail had been the passenger side.
(c) Amtrak is the main carrier for government cargo and Conrail is available to the general public.
(d) Amtrak operates as a commuter train while Conrail operates as a long-distance carrier.

9. What is the fundamental basis of capitalism?
(a) The main idea behind capitalism was providing welfare to the less fortunate.
(b) The main idea behind capitalism was investment and return on investment.
(c) The main idea behind capitalism was making money and hoarding cash.
(d) The main idea behind capitalism was making investments in foreign interests.

10. How did poor regulation contribute to the Savings and Loan crisis of the 1980s?
(a) Government regulations allowed S&Ls to hoard money to increase their cash flow.
(b) Government regulations allowed S&Ls to claim assets that had no value, such as community good will toward them, and encouraged bad lending practices to increase home ownership.
(c) Government regulations allowed S&Ls to file individual bankruptcies.
(d) Government regulations allowed S&Ls did not require them to repay their debtors in full.

11. What impact did the Greek currency system have on the economy?
(a) The Greek currency system led to other cultures creating similar systems.
(b) The Greek currency system led to a stable economy.
(c) The Greek currency system led to an unstable economy.
(d) The Greek currency system had no effect on the economy.

12. What was the relationship between the World Bank and the IMF?
(a) The IMF and World Bank were a division of the United Nations.
(b) The IMF and World Bank were closely associated with the United Nations.
(c) The IMF and World Bank were controlled by the United Nations.
(d) The IMF and World Bank were associated with but not tied directly to the United Nations.

13. What was one of the strongest arguments in favor of bank regulation versus nationalization?
(a) An argument in favor of regulation was that the American people felt uncomfortable with nationalization.
(b) An argument in favor of regulation was that it would cause less unemployment.
(c) An argument in favor of regulation was that, when properly administered, it had worked from the time of Franklin D. Roosevelt (President of the US from 1933 to 1945) to 1970.
(d) An argument in favor of regulation was that it would purge the system of fraud and abuse.

14. What culture was the first to create a currency system based on gold and silver?
(a) The British came up with the idea to make coins out of gold and silver.
(b) Alexander the Great came up with the idea to make coins out of gold and silver.
(c) The ancient Romans came up with the idea to make coins out of gold and silver.
(d) The ancient Greeks came up with the idea to make coins out of gold and silver.

15. How were the policies of FDR's administration a departure from capitalism?
(a) They abandoned standards of the Federal Reserve that were supposed to have worked with a purely capitalistic system.
(b) They abandoned the free market principles that were supposed to have worked with a purely capitalistic system.
(c) They abandoned Congressional banking regulations that were supposed to have worked with a purely capitalistic system.
(d) They abandoned the principles of the International Monetary Fund that were supposed to have worked with a purely capitalistic system.

Short Answer Questions

1. What economic group is hit the hardest by an inflation?

2. What major banks failed in 1972?

3. How did the banks make their money?

4. How was some property converted for home ownership during the 1980s?

5. What happens when the Federal Reserve System prints new money?

(see the answer keys)

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