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This test consists of 5 multiple choice questions, 5 short answer questions, and 10 short essay questions.

Multiple Choice Questions

1. What was the impact of the creation of new money on the currency?
(a) People considered the creation of new money inflationary as the prices of goods and services rose, but in reality this was a devaluing of the currency.
(b) People considered the creation of new money inflationary as the prices of goods and services rose, but in reality it was strengthening the currency in the world market.
(c) People considered the creation of new money inflationary as the prices of goods and services rose but had no impact on the currency.
(d) People considered the creation of new money inflationary as the prices of goods and services rose, but in reality this was increasing the value of the currency.

2. What was one of the strongest arguments in favor of bank regulation versus nationalization?
(a) An argument in favor of regulation was that it would purge the system of fraud and abuse.
(b) An argument in favor of regulation was that it would cause less unemployment.
(c) An argument in favor of regulation was that the American people felt uncomfortable with nationalization.
(d) 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.

3. What has caused the economy's boom-bust cycle?
(a) The economy's boom-bust cycle is caused from trade deficits.
(b) The economy's boom-bust cycle is caused by the instability of the International Monetary Fund.
(c) The economy's boom-bust cycle is caused from people hoarding cash.
(d) The Federal Reserve's advertised purpose was to stabilize the economy, but depressions and recessions have resulted instead in a boom-bust cycle.

4. What important aspect about the economic history of the country did the author fail to mention?
(a) The author failed to mention that our economic system depends on foreign investments.
(b) The author failed to mention that our economic system may have been fixed at one time and then broken again.
(c) The author failed to mention that our economic system depends on the success of the stock market.
(d) The author failed to mention that our economic system is impossible to fix.

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

Short Answer Questions

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

2. How did the banks make their money?

3. What monetary system did the Constitution of the newly formed United States require?

4. What new way of home ownership emerged in the 1980s?

5. What risky loan activities have banks participated in?

Short Essay Questions

1. According to Chapter 1, where did the idea for the Federal Reserve System originate?

2. According to Chapter 5, what country contributed the largest investment in the IMF?

3. In Chapter 2, how did the author characterize the problems with the banking system?

4. In Chapter 2, how did the banks make their money?

5. In Chapter 7, what impact did the Greek currency system have on the economy?

6. According to Chapter 4, what caused the Savings & Loan crisis of the 1980s?

7. According to Chapter 3, the nationalization of banks is more likely to occur under conservative or liberal administrations?

8. According to Chapter 7, What can result when paper money is not backed with gold or silver?

9. In Chapter 1, how is a "currency drain" defined?

10. According to Chapter 1, what were banks allowed to lend prior to the establishment of the Federal Reserve System?

(see the answer keys)

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