Question 1

Economists believe that countries recently suffering hyperinflation have experienced

Accepted Answer

A)  reduced growth. 
B)  increased growth. 
C)  reduced prices. 
D)  lower interest rates. 
A)  reduced growth. 
B)  increased growth. 
C)  reduced prices. 
D)  lower interest rates.

Question 2

The most common definition that monetary policymakers use for price stability is

Accepted Answer

A)  low and stable deflation. 
B)  an inflation rate of zero percent. 
C)  high and stable inflation. 
D)  low and stable inflation. 
A)  low and stable deflation. 
B)  an inflation rate of zero percent. 
C)  high and stable inflation. 
D)  low and stable inflation.

Question 3

Explain the Federal Reserve's "just do it" approach to monetary policy. What are the advantages and disadvantages to this type of strategy?

Accepted Answer

The Federal Reserve doesn't use an expli

Question 4

International policy coordination refers to

Accepted Answer

A)  central banks in major nations acting without regard to the global consequences of their policies. 
B)  central banks in major nations pursuing only domestic objectives. 
C)  central banks adopting policies in pursuit of joint objectives. 
D)  central banks all adopting identical policies. 
A)  central banks in major nations acting without regard to the global consequences of their policies. 
B)  central banks in major nations pursuing only domestic objectives. 
C)  central banks adopting policies in pursuit of joint objectives. 
D)  central banks all adopting identical policies.

Question 5

Which of the following is NOT an argument against using monetary policy to prick asset-price bubbles?

Accepted Answer

A)  The effect of increasing interest rates on asset prices is uncertain. 
B)  A bubble may only exist in some asset-prices and monetary policy will affect all asset prices. 
C)  Using monetary policy to prick an asset-price bubble may have adverse effect on the aggregate economy. 
D)  Even though credit-drive bubbles are easier to identify, they are still relatively hard to identify. 
A)  The effect of increasing interest rates on asset prices is uncertain. 
B)  A bubble may only exist in some asset-prices and monetary policy will affect all asset prices. 
C)  Using monetary policy to prick an asset-price bubble may have adverse effect on the aggregate economy. 
D)  Even though credit-drive bubbles are easier to identify, they are still relatively hard to identify.

Question 6

The fluctuations in both money supply growth and the federal funds rate during 1979-1982 suggest that the Fed

Accepted Answer

A)  had shifted to borrowed reserves as an operating target. 
B)  had shifted to total reserves as an operating target. 
C)  had shifted to the monetary base as an operating target. 
D)  never intended to target monetary aggregates. 
A)  had shifted to borrowed reserves as an operating target. 
B)  had shifted to total reserves as an operating target. 
C)  had shifted to the monetary base as an operating target. 
D)  never intended to target monetary aggregates.

Question 7

Using Taylor's rule, when the equilibrium real federal funds rate is 3 percent, the positive output gap is 2 percent, the target inflation rate is 1 percent, and the actual inflation rate is 2 percent, the nominal federal funds rate target should be

Accepted Answer

A)  5 percent. 
B)  5.5 percent. 
C)  6 percent. 
D)  6.5 percent. 
A)  5 percent. 
B)  5.5 percent. 
C)  6 percent. 
D)  6.5 percent.

Question 8

Which of the following is a potential operating instrument for the central bank?

Accepted Answer

A)  The monetary base 
B)  The M1 money supply 
C)  Nominal GDP 
D)  The discount rate 
A)  The monetary base 
B)  The M1 money supply 
C)  Nominal GDP 
D)  The discount rate

Question 9

Which set of goals can, at times, conflict in the short run?

Accepted Answer

A)  High employment and economic growth. 
B)  Interest rate stability and financial market stability. 
C)  High employment and price level stability. 
D)  Exchange rate stability and financial market stability. 
A)  High employment and economic growth. 
B)  Interest rate stability and financial market stability. 
C)  High employment and price level stability. 
D)  Exchange rate stability and financial market stability.

Question 10

Having interest rate stability

Accepted Answer

A)  allows for less uncertainty about future planning. 
B)  leads to demands to curtail the Fed's power. 
C)  guarantees full employment. 
D)  leads to problems in financial markets. 
A)  allows for less uncertainty about future planning. 
B)  leads to demands to curtail the Fed's power. 
C)  guarantees full employment. 
D)  leads to problems in financial markets.

Question 11

The monetary policy strategy that suffers a lack of transparency is

Accepted Answer

A)  exchange-rate targeting. 
B)  monetary targeting. 
C)  inflation targeting. 
D)  the implicit nominal anchor. 
A)  exchange-rate targeting. 
B)  monetary targeting. 
C)  inflation targeting. 
D)  the implicit nominal anchor.

Question 12

A central feature of monetary policy strategies in all countries is the use of a nominal variable that monetary policymakers use as an intermediate target to achieve an ultimate goal such as price stability. Such a variable is called a nominal

Accepted Answer

A)  anchor. 
B)  benchmark. 
C)  tether. 
D)  guideline. 
A)  anchor. 
B)  benchmark. 
C)  tether. 
D)  guideline.

Question 13

The rate of inflation increases when

Accepted Answer

A)  the unemployment rate equals the NAIRU. 
B)  the unemployment rate exceeds the NAIRU. 
C)  the unemployment rate is less than the NAIRU. 
D)  the unemployment rate increases faster than the NAIRU increases. 
A)  the unemployment rate equals the NAIRU. 
B)  the unemployment rate exceeds the NAIRU. 
C)  the unemployment rate is less than the NAIRU. 
D)  the unemployment rate increases faster than the NAIRU increases.

Question 14

Everything else held constant, a credit-drive bubble is generally considered to have the potential to cause ________ damage to an economy compared to an irrational exuberance bubble.

Accepted Answer

A)  less 
B)  about the same amount of 
C)  more 
D)  either more, less, or the same amount of 
A)  less 
B)  about the same amount of 
C)  more 
D)  either more, less, or the same amount of

Question 15

If the central bank pursues a monetary policy that is more expansionary than what firms and people expect, then the central bank must be trying to

Accepted Answer

A)  boost output in the short run. 
B)  constrain output in the short run. 
C)  constrain prices. 
D)  boost prices in the short run. 
A)  boost output in the short run. 
B)  constrain output in the short run. 
C)  constrain prices. 
D)  boost prices in the short run.

Question 16

The primary goal of the European Central Bank is

Accepted Answer

A)  price stability. 
B)  exchange rate stability. 
C)  interest rate stability. 
D)  high employment. 
A)  price stability. 
B)  exchange rate stability. 
C)  interest rate stability. 
D)  high employment.

Question 17

A borrowed reserves target is ________ because increases in income ________ interest rates and discount loans, causing the Fed to ________ the monetary base, everything else held constant.

Accepted Answer

A)  procyclical; increase; increase 
B)  countercyclical; increase; increase 
C)  procyclical; reduce; reduce 
D)  countercyclical; reduce; reduce 
A)  procyclical; increase; increase 
B)  countercyclical; increase; increase 
C)  procyclical; reduce; reduce 
D)  countercyclical; reduce; reduce

Question 18

When workers voluntarily leave work while they look for better jobs, the resulting unemployment is called

Accepted Answer

A)  structural unemployment. 
B)  frictional unemployment. 
C)  cyclical unemployment. 
D)  underemployment. 
A)  structural unemployment. 
B)  frictional unemployment. 
C)  cyclical unemployment. 
D)  underemployment.

Question 19

Explain and demonstrate graphically how targeting the federal funds rate can result in fluctuations in nonborrowed reserves.

Accepted Answer

See figure below. @#IMG-DLM& With a fede

Question 20

The Fed's use of the federal funds rate as an operating target in the 1970s resulted in

Accepted Answer

A)  countercyclical monetary policy. 
B)  too slow growth in M1 throughout the decade. 
C)  procyclical monetary policy. 
D)  too rapid growth in M1 throughout the decade. 
A)  countercyclical monetary policy. 
B)  too slow growth in M1 throughout the decade. 
C)  procyclical monetary policy. 
D)  too rapid growth in M1 throughout the decade.

Exam 19: The Conduct of Monetary Policy: Strategy and Tactics

Economists believe that countries recently suffering hyperinflation have experienced

The most common definition that monetary policymakers use for price stability is

Explain the Federal Reserve's "just do it" approach to monetary policy. What are the advantages and disadvantages to this type of strategy?

International policy coordination refers to

Which of the following is NOT an argument against using monetary policy to prick asset-price bubbles?

The fluctuations in both money supply growth and the federal funds rate during 1979-1982 suggest that the Fed

Using Taylor's rule, when the equilibrium real federal funds rate is 3 percent, the positive output gap is 2 percent, the target inflation rate is 1 percent, and the actual inflation rate is 2 percent, the nominal federal funds rate target should be

Which of the following is a potential operating instrument for the central bank?

Which set of goals can, at times, conflict in the short run?

Having interest rate stability

The monetary policy strategy that suffers a lack of transparency is

A central feature of monetary policy strategies in all countries is the use of a nominal variable that monetary policymakers use as an intermediate target to achieve an ultimate goal such as price stability. Such a variable is called a nominal

The rate of inflation increases when

Everything else held constant, a credit-drive bubble is generally considered to have the potential to cause ________ damage to an economy compared to an irrational exuberance bubble.

If the central bank pursues a monetary policy that is more expansionary than what firms and people expect, then the central bank must be trying to

The primary goal of the European Central Bank is

A borrowed reserves target is ________ because increases in income ________ interest rates and discount loans, causing the Fed to ________ the monetary base, everything else held constant.

When workers voluntarily leave work while they look for better jobs, the resulting unemployment is called

Explain and demonstrate graphically how targeting the federal funds rate can result in fluctuations in nonborrowed reserves.

The Fed's use of the federal funds rate as an operating target in the 1970s resulted in

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Financial Crises

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Nonbank Finance

Financial Derivatives

Conflicts of Interest in the Financial Industry

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Foreign Exchange Market

The International Financial System

Quantity Theory, Inflation, and the Demand for Money

Aggregate Demand and Supply Analysis

Monetary Policy Theory

Transmission Mechanisms of Monetary Policy

Filters

A borrowed reserves target is because increases in income interest rates and discount loans, causing the Fed to the monetary base, everything else held constant.