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Unformatted text preview: Homework 4 - Answer Key ECON 4721: Money and Banking, Fall 2009 1. The regulatory system that has evolved in the United States whereby banks are regulated at the state level, the national level, or both, is known as a A) bilateral regulatory system. B) tiered regulatory system. C) two-tiered regulatory system. D) dual banking system. 2. Probably the most significant factor explaining the drastic drop in the number of bank failures since the Great Depression has been A) the creation of the FDIC. B) rapid economic growth since 1941. C) the employment of new procedures by the Federal Reserve. D) better bank management. 3. The Glass-Steagall Act, before its repeal in 1999, prohibited commercial banks from A) issuing equity to finance bank expansion. B) engaging in underwriting and dealing of corporate securities. C) selling new issues of government securities. D) purchasing any debt securities. 4. The cost of holding reserves to a bank equals A) the interest paid on deposits times the amount of reserves. B) the interest paid on deposits times the amount of deposits. C) the interest earned on loans times the amount of loans. D) the interest earned on loans times the amount on reserves. 5. Since 1974, commercial banks importance as a source of funds for nonfinancial borrowers A) has shrunk dramatically, from around 40 percent of total credit advanced to below 30 percent by 2005. B) has shrunk dramatically, from around 70 percent of total credit advanced to below 50 percent by 2005. C) has expanded dramatically, from around 50 percent of total credit advanced to above 70 percent by 2005. D) has expanded dramatically, from around 30 percent of total credit advanced to above 50 percent by 2005. 1 6. The presence of so many commercial banks in the United States is most likely the result of A) consumers strong desire for dealing with only local banks. B) adverse selection and moral hazard problems that give local banks a competitive advantage over larger banks. C) prior regulations that restrict the ability of these financial institutions to open branches. D) consumers preference for state banks. 7. As the banking system in the United States evolves, it is expected that A) the number and importance of small banks will increase. B) the number and importance of large banks will decrease. C) small banks will grow at the expense of large banks. D) the number and importance of large banks will increase. 8. A major difference between the United States and banking systems in some other countries is that A) American banks are allowed to hold substantial equity stakes in commercial firms, whereas banks in some other countries cannot. B) Banks in some other countries are allowed to hold substantial equity stakes in commercial firms, whereas American banks cannot....
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This note was uploaded on 02/20/2010 for the course ECON 4721 taught by Professor Satoshitanaka during the Spring '10 term at University of Minnesota Duluth.
- Spring '10