Question 1

A tight monetary policy that curbs inflation by reducing the rate of growth in the money supply ________.

Accepted Answer

A)  can also strengthen the financial health of the firms that borrowed from the financial institutions. 
B)  may actually weaken the financial health of the firms that borrowed from the financial institutions. 
C)  can avoid non-wanted goals. 
D)  All of these 
A)  can also strengthen the financial health of the firms that borrowed from the financial institutions. 
B)  may actually weaken the financial health of the firms that borrowed from the financial institutions. 
C)  can avoid non-wanted goals. 
D)  All of these B

Question 2

The fed funds rate meets the requirement for an operating target. Which of the below is this requirement?

Accepted Answer

A)  The rate is readily observable and continuously available because the market for fed funds is large and active. 
B)  The rate is readily observable and continuously available because the market for fed funds is small but active. 
C)  The rate is readily observable and continuously available because the market for fed funds is large but inactive. 
D)  The rate is often not observable or available because the market for fed funds is small and/or inactive. 
A)  The rate is readily observable and continuously available because the market for fed funds is large and active. 
B)  The rate is readily observable and continuously available because the market for fed funds is small but active. 
C)  The rate is readily observable and continuously available because the market for fed funds is large but inactive. 
D)  The rate is often not observable or available because the market for fed funds is small and/or inactive. A

Question 3

Overall, according to the Keynesian view of the economy, a ________ in the fed funds rate should lead to a(n) ________ level of output and employment in the economy.

Accepted Answer

A)  decline; lower 
B)  rise; higher 
C)  decline; unknown 
D)  None of these 
A)  decline; lower 
B)  rise; higher 
C)  decline; unknown 
D)  None of these D

Question 4

Interestingly, in recent years, many central banks have adopted inflation, despite certain problems in measurement, as a key intermediate variable.

Accepted Answer

A) True 
 B)False

Question 5

Which of the below statements is FALSE?

Accepted Answer

A)  An important source of inflation is an economic shock in the supply of a crucial material, such as the oil shocks of the 1970s, which affected almost all countries. 
B)  It is important to realize that high employment is one of the Fed's goals because, in certain circumstances, the Fed's policy can indirectly influence the level of employment. 
C)  Given that zero unemployment is not a feasible aim, the appropriate goal of the Fed and other governmental policy makers is actually a high level of employment. 
D)  Stability in the price level is a secondary goal of the Fed. 
A)  An important source of inflation is an economic shock in the supply of a crucial material, such as the oil shocks of the 1970s, which affected almost all countries. 
B)  It is important to realize that high employment is one of the Fed's goals because, in certain circumstances, the Fed's policy can indirectly influence the level of employment. 
C)  Given that zero unemployment is not a feasible aim, the appropriate goal of the Fed and other governmental policy makers is actually a high level of employment. 
D)  Stability in the price level is a secondary goal of the Fed.

Question 6

The account of the widely accepted goals of monetary policy reveals a profound problem in the conduct of monetary policy. The goals are numerous, but the Fed's capabilities are limited. Describe the two limitations.

Accepted Answer

The Fed's capabilities are limited to th

Question 7

Economic growth is ________.

Accepted Answer

A)  not related to the goal of high employment. 
B)  helpful because it allows a constant reallocation of labor and leads to increased efficiency in the work force. 
C)  not a Fed goal because its operations cannot affect the level of growth. 
D)  the third goal of the Fed, which is the increase in an economy's output of goods and services. 
A)  not related to the goal of high employment. 
B)  helpful because it allows a constant reallocation of labor and leads to increased efficiency in the work force. 
C)  not a Fed goal because its operations cannot affect the level of growth. 
D)  the third goal of the Fed, which is the increase in an economy's output of goods and services.

Question 8

Which of the below statements is TRUE?

Accepted Answer

A)  The goal of stabilizing interest rates is indirectly related to the goal of growth and to the Fed's responsibility for the health of the nation's financial and banking system. 
B)  The Fed's goal is to stabilize and prevent changes in rates. 
C)  Because exchange rates are independent of the monetary policies of the major countries, the Fed has accepted the goal of stabilizing foreign exchange rates. 
D)  A chief disadvantage of unstable foreign currency exchange rates is that volatility in the prices of currencies inhibits the international trade that offers a host of benefits to all participating countries. 
A)  The goal of stabilizing interest rates is indirectly related to the goal of growth and to the Fed's responsibility for the health of the nation's financial and banking system. 
B)  The Fed's goal is to stabilize and prevent changes in rates. 
C)  Because exchange rates are independent of the monetary policies of the major countries, the Fed has accepted the goal of stabilizing foreign exchange rates. 
D)  A chief disadvantage of unstable foreign currency exchange rates is that volatility in the prices of currencies inhibits the international trade that offers a host of benefits to all participating countries.

Question 9

Bernanke became chairman during the final 25 basis point increases in the Fed funds rate to 5.25% on June 29, 2006, and maintained this rate through the remainder of 2006 and the first half of 2007.

Accepted Answer

A) True 
 B)False

Question 10

During the early 1990s, what did the Fed succeed in doing?

Accepted Answer

A)  The Fed successfully reduced rates across the maturity spectrum. 
B)  The fed funds rate rose to 13%, and the yield on 10-year government bonds was also high, touching 15.72% in December 1993. 
C)  It succeeded in aiding an economic expansion that unfortunately caused a rising civilian unemployment rate. 
D)  It spearheaded an economic recession with a falling real GDP. 
A)  The Fed successfully reduced rates across the maturity spectrum. 
B)  The fed funds rate rose to 13%, and the yield on 10-year government bonds was also high, touching 15.72% in December 1993. 
C)  It succeeded in aiding an economic expansion that unfortunately caused a rising civilian unemployment rate. 
D)  It spearheaded an economic recession with a falling real GDP.

Question 11

The goals are numerous, but the Fed's capabilities are limited to the simple menu of (1) trying to raise the rate of growth in the money supply by providing more reserves to banks, and (2) trying to reduce the rate of monetary expansion by reducing the reserves in the banking system.

Accepted Answer

A) True 
 B)False

Question 12

During March 2008, there were surprisingly no concerns that a bankruptcy of Bear Stearns was imminent.

Accepted Answer

A) True 
 B)False

Question 13

A requirement of a good operating target is that the Fed can exert substantial control over its level and changes. If the rate were to rise above the level that the Fed thought conducive to economic growth and high employment, the Fed would ________.

Accepted Answer

A)  engage in open market purchases and not inject reserves into the banking system. 
B)  engage in open market purchases and inject reserves into the banking system. 
C)  not engage in open market purchases but would inject reserves into the banking system. 
D)  neither engage in open market purchases nor inject reserves into the banking system. 
A)  engage in open market purchases and not inject reserves into the banking system. 
B)  engage in open market purchases and inject reserves into the banking system. 
C)  not engage in open market purchases but would inject reserves into the banking system. 
D)  neither engage in open market purchases nor inject reserves into the banking system.

Question 14

A "weak" dollar contributes to inflation, as U.S. buyers pay more for the many goods they do import.

Accepted Answer

A) True 
 B)False

Question 15

In the mid 1980s, two developments of note occurred. The first was the need for the Fed, which it publicly acknowledged, to become concerned with the level and stability of the U.S. dollar's foreign currency exchange rate. What was the second development?

Accepted Answer

A)  It was the shocking fall in equity prices around the world in October 1987. 
B)  It was the shocking increase in equity prices around the world after the fall in prices in October 1987. 
C)  It was the realization that nothing could be done to curb the instability in the financial markets. 
D)  It was the realization that nothing could be done to provide necessary liquidity. 
A)  It was the shocking fall in equity prices around the world in October 1987. 
B)  It was the shocking increase in equity prices around the world after the fall in prices in October 1987. 
C)  It was the realization that nothing could be done to curb the instability in the financial markets. 
D)  It was the realization that nothing could be done to provide necessary liquidity.

Question 16

Discuss two problems that the Fed has in implementing monetary policy.

Accepted Answer

The account of the widely accepted goals

Question 17

________ is helpful because it allows a constant reallocation of labor and leads to increased efficiency in the work force.

Accepted Answer

A)  Zero inflation 
B)  Full employment 
C)  Frictional unemployment 
D)  Excess demand 
A)  Zero inflation 
B)  Full employment 
C)  Frictional unemployment 
D)  Excess demand

Question 18

The Fed's policy beginning in 1983 was to keep the growth in borrowed reserves within some specified range. As a result, the Fed ________.

Accepted Answer

A)  supplied reserves through open market purchases when borrowed reserves fell. 
B)  refused reserves through open market purchases when borrowed reserves rose. 
C)  supplied reserves through open market sells when borrowed reserves rose. 
D)  supplied reserves through open market purchases when borrowed reserves rose. 
A)  supplied reserves through open market purchases when borrowed reserves fell. 
B)  refused reserves through open market purchases when borrowed reserves rose. 
C)  supplied reserves through open market sells when borrowed reserves rose. 
D)  supplied reserves through open market purchases when borrowed reserves rose.

Question 19

Identify and briefly describe three of the major goals of Fed policy.

Accepted Answer

First, stability in the price level is o

Question 20

Keynesians adopt a monetary policy that largely calls for targeting long-term interest rates.

Accepted Answer

A) True 
 B)False

Exam 5: Monetary Policy in the United States

A tight monetary policy that curbs inflation by reducing the rate of growth in the money supply ________.

The fed funds rate meets the requirement for an operating target. Which of the below is this requirement?

Overall, according to the Keynesian view of the economy, a ________ in the fed funds rate should lead to a(n) ________ level of output and employment in the economy.

Interestingly, in recent years, many central banks have adopted inflation, despite certain problems in measurement, as a key intermediate variable.

Which of the below statements is FALSE?

The account of the widely accepted goals of monetary policy reveals a profound problem in the conduct of monetary policy. The goals are numerous, but the Fed's capabilities are limited. Describe the two limitations.

Economic growth is ________.

Which of the below statements is TRUE?

Bernanke became chairman during the final 25 basis point increases in the Fed funds rate to 5.25% on June 29, 2006, and maintained this rate through the remainder of 2006 and the first half of 2007.

During the early 1990s, what did the Fed succeed in doing?

The goals are numerous, but the Fed's capabilities are limited to the simple menu of (1) trying to raise the rate of growth in the money supply by providing more reserves to banks, and (2) trying to reduce the rate of monetary expansion by reducing the reserves in the banking system.

During March 2008, there were surprisingly no concerns that a bankruptcy of Bear Stearns was imminent.

A requirement of a good operating target is that the Fed can exert substantial control over its level and changes. If the rate were to rise above the level that the Fed thought conducive to economic growth and high employment, the Fed would ________.

A "weak" dollar contributes to inflation, as U.S. buyers pay more for the many goods they do import.

In the mid 1980s, two developments of note occurred. The first was the need for the Fed, which it publicly acknowledged, to become concerned with the level and stability of the U.S. dollar's foreign currency exchange rate. What was the second development?

Discuss two problems that the Fed has in implementing monetary policy.

________ is helpful because it allows a constant reallocation of labor and leads to increased efficiency in the work force.

The Fed's policy beginning in 1983 was to keep the growth in borrowed reserves within some specified range. As a result, the Fed ________.

Identify and briefly describe three of the major goals of Fed policy.

Keynesians adopt a monetary policy that largely calls for targeting long-term interest rates.

Introduction

Financial Institutions, Financial Intermediaries, and Asset Management Firms

Depository Institutions: Activities and Characteristics

The U.S. Federal Reserve and the Creation of Money

Insurance Companies

Investment Companies and Exchange Traded Funds

Pension Funds

Properties and Pricing of Financial Assets

The Level and Structure of Interest Rates

The Term Structure of Interest Rates

Risk/Return and Asset Pricing Models

Primary Markets and the Underwriting of Securities

Secondary Markets

Treasury and Agency Securities Markets

Municipal Securities Markets

Markets for Common Stock: The Basic Characteristics

Markets for Common Stock: Structure and Organization

Markets for Corporate Senior Instruments: I

Markets for Corporate Senior Instruments: II

The Markets for Bank Obligations

The Residential Mortgage Market

Mortgage-Backed Securities Market

Market for Commercial Mortgage Loans and Commercial Mortgage-Backed Securities

Market for Asset-Backed Securities

Financial Futures Markets

Options Markets

Pricing of Futures and Options Contracts

The Applications of Futures and Options Contracts

OTC Interest Rate Derivatives: Forward Rate Agreements, Swaps, Caps, and Floors

Market for Credit Risk Transfer Vehicles: Credit Derivatives and Collateralized Debt Obligations

The Market for Foreign Exchange and Risk Control Instruments

Filters

Overall, according to the Keynesian view of the economy, a in the fed funds rate should lead to a(n) level of output and employment in the economy.