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A. Multiple Choice (0.5 pint each)
1.The following are all important functions of money, except:
a) Acts a medium of exchange.
b) Acts as an indicator of social status.
c) Acts as a store of value.
d) Acts as a unit of account.
2. Which of the following is the best example of adverse selection in the financial sector?
a) When someone wants to borrow money from me, I don’t typically know how likely they are
to repay the loan.
b) Now that I’ve secured a loan from the bank, I’ve decided I am driving to Reno to bet it all on
the Boston Bruins winning the 2019 Stanley Cup.
c) When the economy is doing poorly there aren’t any good options for which stocks to buy.
d) All of these are examples of adverse selection.
3. Which of the following best explains why the government established the FDIC (Federal Deposit
Insurance Company):
a) To ensure that banks made adequate profits because their health is important for the
economy.
b) To make sure that if a financial crisis occurs the federal government will remain solvent.
c)
d) To prevent depositors from panicking, which often led to bank runs and financial crisis.
4.Which of the following financial crises led to the establishment of the Federal Reserve?
a) The Financial Collapse of 2008.
b) The Great Depression of 1837.
c) The Panic of 1907.
d) Inflation of the Continentals during the Revolutionary War.
B. True or False (0.5 point each)
For the following statements, please first answer true or false. Then provide a brief explanation to
your answer.
1. Money is important to the economy because, by eliminating the need for a mutual
coincidence of wants, it facilitates and encourages exchange.
2. The nation’s second attempt to form a central bank failed because it was improperly run
and led to a financial crisis.
C. Short Question (2 points)
1. Argue for or against the independence of the Federal Reserve.
extra_credit_problem_set.pdf

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Extra Credit Problem Set
Due at the start of the final exam, Tuesday, May 14
A. Multiple Choice (0.5 pint each)
1.The following are all important functions of money, except:
a)
b)
c)
d)
Acts a medium of exchange.
Acts as an indicator of social status.
Acts as a store of value.
Acts as a unit of account.
2. Which of the following is the best example of adverse selection in the financial sector?
a) When someone wants to borrow money from me, I don’t typically know how likely they are
to repay the loan.
b) Now that I’ve secured a loan from the bank, I’ve decided I am driving to Reno to bet it all on
the Boston Bruins winning the 2019 Stanley Cup.
c) When the economy is doing poorly there aren’t any good options for which stocks to buy.
d) All of these are examples of adverse selection.
3. Which of the following best explains why the government established the FDIC (Federal Deposit
Insurance Company):
a) To ensure that banks made adequate profits because their health is important for the
economy.
b) To make sure that if a financial crisis occurs the federal government will remain solvent.
c)
d) To prevent depositors from panicking, which often led to bank runs and financial crisis.
4.Which of the following financial crises led to the establishment of the Federal Reserve?
a)
b)
c)
d)
The Financial Collapse of 2008.
The Great Depression of 1837.
The Panic of 1907.
Inflation of the Continentals during the Revolutionary War.
B. True or False (0.5 point each)
For the following statements, please first answer true or false. Then provide a brief explanation to
your answer.
1. Money is important to the economy because, by eliminating the need for a mutual
coincidence of wants, it facilitates and encourages exchange.
2. The nation’s second attempt to form a central bank failed because it was improperly run
and led to a financial crisis.
C. Short Question (2 points)
1. Argue for or against the independence of the Federal Reserve.

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