Question 1

Easy monetary policy strengthens the dollar.

Accepted Answer

A) True 
 B)False  False

Question 2

What exactly is the Fed Funds Rate, and how is it used in setting monetary policy?

Accepted Answer

The Fed targets but does not set the Fed Funds Rate. The Fed Funds Market is a Fed-sponsored system in which depository institutions lend and borrow excess reserves among themselves. Thus the Fed Funds Rate (FFR) is set by market forces as they bargain with each other. The FFR is a "benchmark" rate in the financial system-it normally represents the lowest possible cost of loanable funds to a depository institution. The Fed substantially influences the FFR in the short term by controlling overall availability of reserves. However, the Fed cannot set the Fed Funds Rate in the long run because factors in the real sector ultimately determine credit demand.

Question 3

Restrictive monetary policy in the United States may slow down nominal GDP.

Accepted Answer

A) True 
 B)False  True

Question 4

When the Fed increases the Fed Funds Rate, financial institutions "go to the Window".

Accepted Answer

A) True 
 B)False

Question 5

"Cash drains" are an example of a factor that complicates the Fed's ability to control the money supply.

Accepted Answer

A) True 
 B)False

Question 6

Unexpected high levels of inflation aid debtors at the expense of lenders.

Accepted Answer

A) True 
 B)False

Question 7

Whether an increase in the money supply results in real growth or inflation is impacted by how close the economy is to full capacity.

Accepted Answer

A) True 
 B)False

Question 8

Monetary policy first affects financial markets and institutions, then the real economy.

Accepted Answer

A) True 
 B)False

Question 9

Interest rates and the money supply tend to vary inversely, at least in the short term.

Accepted Answer

A) True 
 B)False

Question 10

Decreasing interest rates tend to increase financial wealth and encourage consumer spending.

Accepted Answer

A) True 
 B)False

Question 11

A prolonged "tight" monetary policy can be associated with falling bond prices.

Accepted Answer

A) True 
 B)False

Question 12

Explain how the Fed adjusts its balance sheet to increase or decrease the monetary base.

Accepted Answer

The Fed controls the bank reserve compon

Question 13

The Fed purchased over $300 billion in commercial paper during the financial crisis to prop up this market.

Accepted Answer

A) True 
 B)False

Question 14

There is definitely a tradeoff between stable prices and full employment.

Accepted Answer

A) True 
 B)False

Question 15

Stable or growing employment is one of the objectives of monetary policy.

Accepted Answer

A) True 
 B)False

Question 16

The cash-holding behavior of the public affects the monetary base.

Accepted Answer

A) True 
 B)False

Question 17

What should happen to consumption if the monetary base increases? Explain.

Accepted Answer

Excess increase, pressuring the "benchma

Question 18

The goals of U.S. monetary policy were set by Congress.

Accepted Answer

A) True 
 B)False

Question 19

High debt levels can make it harder for the Fed to stimulate the economy.

Accepted Answer

A) True 
 B)False

Question 20

The Federal Reserve decreases the monetary base whenever it sells government securities.

Accepted Answer

A) True 
 B)False

Easy monetary policy strengthens the dollar.

What exactly is the Fed Funds Rate, and how is it used in setting monetary policy?

Restrictive monetary policy in the United States may slow down nominal GDP.

When the Fed increases the Fed Funds Rate, financial institutions "go to the Window".

"Cash drains" are an example of a factor that complicates the Fed's ability to control the money supply.

Unexpected high levels of inflation aid debtors at the expense of lenders.

Whether an increase in the money supply results in real growth or inflation is impacted by how close the economy is to full capacity.

Monetary policy first affects financial markets and institutions, then the real economy.

Interest rates and the money supply tend to vary inversely, at least in the short term.

Decreasing interest rates tend to increase financial wealth and encourage consumer spending.

A prolonged "tight" monetary policy can be associated with falling bond prices.

Explain how the Fed adjusts its balance sheet to increase or decrease the monetary base.

The Fed purchased over $300 billion in commercial paper during the financial crisis to prop up this market.

There is definitely a tradeoff between stable prices and full employment.

Stable or growing employment is one of the objectives of monetary policy.

The cash-holding behavior of the public affects the monetary base.

What should happen to consumption if the monetary base increases? Explain.

The goals of U.S. monetary policy were set by Congress.

High debt levels can make it harder for the Fed to stimulate the economy.

The Federal Reserve decreases the monetary base whenever it sells government securities.

An Overview of Financial Markets and Institutions

The Federal Reserve and Its Powers

The Level of Interest Rates

Bond Prices and Interest Rate Risk

The Structure of Interest Rates

Money Markets 1

Bond Markets

Mortgage Markets and Mortgagebacked Securities

Equity Markets

Derivatives Markets

International Markets

Commercial Bank Operations

International Banking

Regulation of Financial Institutions

Thrift Institutions and Finance Companies

Insurance Companies and Pension Funds

Investment Banking

Investment Companies

Risk Management in Financial Institutions

Filters

Exam 3: The Fed and Interest Rates

Easy monetary policy strengthens the dollar.

What exactly is the Fed Funds Rate, and how is it used in setting monetary policy?

Restrictive monetary policy in the United States may slow down nominal GDP.

When the Fed increases the Fed Funds Rate, financial institutions "go to the Window".

"Cash drains" are an example of a factor that complicates the Fed's ability to control the money supply.

Unexpected high levels of inflation aid debtors at the expense of lenders.

Whether an increase in the money supply results in real growth or inflation is impacted by how close the economy is to full capacity.

Monetary policy first affects financial markets and institutions, then the real economy.

Interest rates and the money supply tend to vary inversely, at least in the short term.

Decreasing interest rates tend to increase financial wealth and encourage consumer spending.

A prolonged "tight" monetary policy can be associated with falling bond prices.

Explain how the Fed adjusts its balance sheet to increase or decrease the monetary base.

The Fed purchased over $300 billion in commercial paper during the financial crisis to prop up this market.

There is definitely a tradeoff between stable prices and full employment.

Stable or growing employment is one of the objectives of monetary policy.

The cash-holding behavior of the public affects the monetary base.

What should happen to consumption if the monetary base increases? Explain.

The goals of U.S. monetary policy were set by Congress.

High debt levels can make it harder for the Fed to stimulate the economy.

The Federal Reserve decreases the monetary base whenever it sells government securities.

An Overview of Financial Markets and Institutions

The Federal Reserve and Its Powers

The Level of Interest Rates

Bond Prices and Interest Rate Risk

The Structure of Interest Rates

Money Markets 1

Bond Markets

Mortgage Markets and Mortgagebacked Securities

Equity Markets

Derivatives Markets

International Markets

Commercial Bank Operations

International Banking

Regulation of Financial Institutions

Thrift Institutions and Finance Companies

Insurance Companies and Pension Funds

Investment Banking

Investment Companies

Risk Management in Financial Institutions

Filters