Question 1

Which of the following best describes the impact lag?

Accepted Answer

A) the time it takes for policymakers to recognize that economic conditions have changed and that a policy change is necessary 
B) the time that elapses from when the need for action is recognized to when the policy adjustment is enacted 
C) the time from when the policy action is taken until there is a significant effect on the economy 
D) None of the above is correct. 
A) the time it takes for policymakers to recognize that economic conditions have changed and that a policy change is necessary 
B) the time that elapses from when the need for action is recognized to when the policy adjustment is enacted 
C) the time from when the policy action is taken until there is a significant effect on the economy 
D) None of the above is correct. C

Question 2

If the demand for reserves is fixed, the larger the supply of reserves provided through open market operation, the

Accepted Answer

A) higher the fed funds rate. 
B) greater the rediscount rate. 
C) higher the interest rate. 
D) lower the fed funds rate. 
A) higher the fed funds rate. 
B) greater the rediscount rate. 
C) higher the interest rate. 
D) lower the fed funds rate. D

Question 3

Beginning in the mid-1980s, depository institutions became increasingly _______ to borrow reserves from the Fed.

Accepted Answer

A) more likely 
B) reluctant 
C) able 
D) unable 
A) more likely 
B) reluctant 
C) able 
D) unable B

Question 4

The Fed targets the interest rate by which of the following?

Accepted Answer

A) by targeting the federal funds rate 
B) through the use of open market operations 
C) by adjusting government spending and taxes 
D) Both a and b are correct. 
A) by targeting the federal funds rate 
B) through the use of open market operations 
C) by adjusting government spending and taxes 
D) Both a and b are correct.

Question 5

In the early 1980s, the Fed focused on the level of ________ as the ________ target.

Accepted Answer

A) nonborrowed reserves, operating 
B) nonborrowed reserves, intermediate 
C) borrowed reserves, operating 
D) borrowed reserves, intermediate 
A) nonborrowed reserves, operating 
B) nonborrowed reserves, intermediate 
C) borrowed reserves, operating 
D) borrowed reserves, intermediate

Question 6

Which of the following is not necessarily a desirable characteristic of an intermediate target variable?

Accepted Answer

A) The variable should be a monetary aggregate. 
B) The variable should be reliably, and thus predictably, related to the goal variables. 
C) Policymakers should be able to observe the intermediate target regularly. 
D) The Fed should be able to hit the targeted range of the intermediate variable. 
A) The variable should be a monetary aggregate. 
B) The variable should be reliably, and thus predictably, related to the goal variables. 
C) Policymakers should be able to observe the intermediate target regularly. 
D) The Fed should be able to hit the targeted range of the intermediate variable.

Question 7

If the demand for reserves is fixed, the smaller the supply of reserves provided through open market operation, the

Accepted Answer

A) higher the fed funds rate. 
B) greater the rediscount rate. 
C) higher the government deficit. 
D) lower the fed funds rate. 
A) higher the fed funds rate. 
B) greater the rediscount rate. 
C) higher the government deficit. 
D) lower the fed funds rate.

Question 8

Which of the following is false?

Accepted Answer

A) There is very little that policymakers can do today to materially affect the current performance of the economy. 
B) The Fed's actions or its failure to take action today may aggravate inflation and cyclical fluctuations later. 
C) Increasing interdependence among the economies of the world implies that U.S. policymakers have more control over the performance of the U.S economy than they had in the past. 
D) The rationale behind intermediate targets is this: If the Fed hits the intermediate target, it will come reasonably close to achieving its economic objectives. 
A) There is very little that policymakers can do today to materially affect the current performance of the economy. 
B) The Fed's actions or its failure to take action today may aggravate inflation and cyclical fluctuations later. 
C) Increasing interdependence among the economies of the world implies that U.S. policymakers have more control over the performance of the U.S economy than they had in the past. 
D) The rationale behind intermediate targets is this: If the Fed hits the intermediate target, it will come reasonably close to achieving its economic objectives.

Question 9

The __________ refers to the time it takes policymakers to realize that a change in the economy's performance has occurred.

Accepted Answer

A) impact lag 
B) policy lag 
C) recognition lag 
D) operating lag 
A) impact lag 
B) policy lag 
C) recognition lag 
D) operating lag

Question 10

Changes in the relationship between a given monetary aggregate and the level of economic activity is believed to be partly caused by

Accepted Answer

A) slow technological change in payment methods. 
B) the increased use of electronic transfers. 
C) the reduction in numbers of new financial instruments and markets. 
D) All of the above are correct. 
A) slow technological change in payment methods. 
B) the increased use of electronic transfers. 
C) the reduction in numbers of new financial instruments and markets. 
D) All of the above are correct.

Question 11

If revised data estimates suggest that some other course of action should have and would have been taken if the revised data were available, this is called

Accepted Answer

A) policy lag. 
B) policy regret. 
C) policy reformulation. 
D) policy cancellation. 
A) policy lag. 
B) policy regret. 
C) policy reformulation. 
D) policy cancellation.

Question 12

The __________ refers to the time that elapses between when an action is taken and when that action has a significant influence on economic variables.

Accepted Answer

A) impact lag 
B) policy lag 
C) recognition lag 
D) operating lag 
A) impact lag 
B) policy lag 
C) recognition lag 
D) operating lag

Question 13

The time that elapses between an action being taken by policymakers and its influence on the economy is called which of the following?

Accepted Answer

A) the timepiece dividend 
B) the government dividend 
C) the impact lag 
D) a New York minute 
A) the timepiece dividend 
B) the government dividend 
C) the impact lag 
D) a New York minute

Question 14

When the Fed uses an interest rate as an intermediate target, upward pressure on the interest rate is countered by increasing the supply of reserves. This may lead to

Accepted Answer

A) higher fed funds rates. 
B) steady economic growth. 
C) a downward slide into recession. 
D) higher inflation in the future. 
A) higher fed funds rates. 
B) steady economic growth. 
C) a downward slide into recession. 
D) higher inflation in the future.

Question 15

The time it takes for policymakers to determine that a change in the economy's performance has occurred is called

Accepted Answer

A) the policy lag. 
B) uncertainty. 
C) the impact lag. 
D) the recognition lag. 
A) the policy lag. 
B) uncertainty. 
C) the impact lag. 
D) the recognition lag.

Question 16

-Refer to Figure . Assume the Fed is targeting a particular level of money supply (Mt) as measured by one of the monetary aggregates. If money demand increases from D to D', what will happen if the Fed continues to leave the money supply unchanged?

Accepted Answer

A) The interest rate will rise. 
B) The interest rate will fall. 
C) The money demand curve will shift leftward. 
D) The money supply curve will increase. 
A) The interest rate will rise. 
B) The interest rate will fall. 
C) The money demand curve will shift leftward. 
D) The money supply curve will increase.

Question 17

When the Fed selects a variable that is midway between its current policy and its eventual goal, that variable is called

Accepted Answer

A) an intermediate target. 
B) an operating target. 
C) a policy target. 
D) a recognition target. 
A) an intermediate target. 
B) an operating target. 
C) a policy target. 
D) a recognition target.

Question 18

Why has the relationship between some monetary aggregates and economic activity failed to survive over time?

Accepted Answer

A) technological changes in the payment system 
B) deregulation 
C) the creation of new financial instruments and markets 
D) All of the above are correct. 
A) technological changes in the payment system 
B) deregulation 
C) the creation of new financial instruments and markets 
D) All of the above are correct.

Question 19

The Fed's attempt to reduce inflation may have a negative short-run impact of

Accepted Answer

A) increased unemployment and reduced growth. 
B) reduced output growth and higher inflation. 
C) lower inflation and higher employment. 
D) lower productivity and lower employment. 
A) increased unemployment and reduced growth. 
B) reduced output growth and higher inflation. 
C) lower inflation and higher employment. 
D) lower productivity and lower employment.

Question 20

Which of the following is true?

Accepted Answer

A) The policy lag refers to the time that elapses from the point when a significant and unexpected change in the economy's performance occurs to when policymakers recognize that such a change has occurred. 
B) Most recently the Fed has emphasized the use of one or more of the monetary aggregates as an operating target. 
C) Policymakers put more emphasis on economic forecasts than on incoming data because incoming data are often revised. 
D) The comparison between the economy's expected performance and policymakers' policy goals guide monetary policy actions. 
A) The policy lag refers to the time that elapses from the point when a significant and unexpected change in the economy's performance occurs to when policymakers recognize that such a change has occurred. 
B) Most recently the Fed has emphasized the use of one or more of the monetary aggregates as an operating target. 
C) Policymakers put more emphasis on economic forecasts than on incoming data because incoming data are often revised. 
D) The comparison between the economy's expected performance and policymakers' policy goals guide monetary policy actions.

Exam 24: The Process of Monetary Policy Formation

Which of the following best describes the impact lag?

If the demand for reserves is fixed, the larger the supply of reserves provided through open market operation, the

Beginning in the mid-1980s, depository institutions became increasingly _______ to borrow reserves from the Fed.

The Fed targets the interest rate by which of the following?

In the early 1980s, the Fed focused on the level of ________ as the ________ target.

Which of the following is not necessarily a desirable characteristic of an intermediate target variable?

If the demand for reserves is fixed, the smaller the supply of reserves provided through open market operation, the

Which of the following is false?

The __________ refers to the time it takes policymakers to realize that a change in the economy's performance has occurred.

Changes in the relationship between a given monetary aggregate and the level of economic activity is believed to be partly caused by

If revised data estimates suggest that some other course of action should have and would have been taken if the revised data were available, this is called

The __________ refers to the time that elapses between when an action is taken and when that action has a significant influence on economic variables.

The time that elapses between an action being taken by policymakers and its influence on the economy is called which of the following?

When the Fed uses an interest rate as an intermediate target, upward pressure on the interest rate is countered by increasing the supply of reserves. This may lead to

The time it takes for policymakers to determine that a change in the economy's performance has occurred is called

-Refer to Figure . Assume the Fed is targeting a particular level of money supply (Mt) as measured by one of the monetary aggregates. If money demand increases from D to D', what will happen if the Fed continues to leave the money supply unchanged?

When the Fed selects a variable that is midway between its current policy and its eventual goal, that variable is called

Why has the relationship between some monetary aggregates and economic activity failed to survive over time?

The Fed's attempt to reduce inflation may have a negative short-run impact of

Which of the following is true?

Introduction and Overview

Money and Its Role in the Economy

The Overseer: the Federal Reserve System

Financial Markets, Instruments, and Market Makers

Interest Rates and Bond Prices

The Structure of Interest Rates

Market Efficiency and the Flow of Funds Among Sectors

An Introduction to Financial Intermediaries and Risk

Commercial Banking Structure, Regulation, and Performance

Financial Innovation

Financial Instability and Strains on the Financial System

Regulation of the Banking System and the Financial Services Industry

The Debt Markets

The Stock Market

Securities Firms, Mutual Funds, and Financial Conglomerates

How Exchange Rates Are Determined

Forward, Futures, and Options Agreements

The International Financial System

The Fed, Depository Institutions, and the Money Supply Process

The Demand for Real Money Balances and Market Equilibrium

Financial Aspects of the Household, Business, Government, and Rest-Of-The-World Sectors

Aggregate Demand and Aggregate Supply

The Challenges of Monetary Policy

Policy Implementation

Monetary Policy in a Globalized Financial System

Filters

In the early 1980s, the Fed focused on the level of as the target.

-Refer to Figure . Assume the Fed is targeting a particular level of money supply (M_t) as measured by one of the monetary aggregates. If money demand increases from D to D', what will happen if the Fed continues to leave the money supply unchanged?