Question 1

Shocks to the U.S. economy in the early 2000s included all of the following EXCEPT

Accepted Answer

A) a collapse in business investment. 
B) fears of increased inflation. 
C) economic damage from terrorist attacks. 
D) military action in the Middle East. 
A) a collapse in business investment. 
B) fears of increased inflation. 
C) economic damage from terrorist attacks. 
D) military action in the Middle East.

Question 2

Using a monetary aggregate for an intermediate target

Accepted Answer

A) will cause the inflation rate to accelerate. 
B) will cause interest rates to fluctuate. 
C) requires the use of an interest rate as an operating target. 
D) is required by the Federal Reserve Act. 
A) will cause the inflation rate to accelerate. 
B) will cause interest rates to fluctuate. 
C) requires the use of an interest rate as an operating target. 
D) is required by the Federal Reserve Act.

Question 3

Federal deposit insurance

Accepted Answer

A) has increased the severity of banking panics. 
B) was never made available to savings-and-loan associations. 
C) was ended by Congress in 1990. 
D) helped cause the crisis in financial institutions during the late 1980s and early 1990s. 
A) has increased the severity of banking panics. 
B) was never made available to savings-and-loan associations. 
C) was ended by Congress in 1990. 
D) helped cause the crisis in financial institutions during the late 1980s and early 1990s.

Question 4

According to William McChesney Martin, an increase in free reserves indicated

Accepted Answer

A) an easing of money market conditions. 
B) a tightening of money market conditions. 
C) that inflation was likely to decline. 
D) that interest rates would be falling. 
A) an easing of money market conditions. 
B) a tightening of money market conditions. 
C) that inflation was likely to decline. 
D) that interest rates would be falling.

Question 5

Why did Monetarist critics of the Fed welcome the appointment of Arthur Burns as chairman of the Board of Governors in 1970?

Accepted Answer

A) Burns promised to make fighting unemployment his top priority. 
B) Burns promised to use the federal funds rate as an operating target. 
C) Burns promised to use monetary aggregates as targets. 
D) Burns promised to stabilize the exchange value of the dollar. 
A) Burns promised to make fighting unemployment his top priority. 
B) Burns promised to use the federal funds rate as an operating target. 
C) Burns promised to use monetary aggregates as targets. 
D) Burns promised to stabilize the exchange value of the dollar.

Question 6

The Humphrey-Hawkins Act of 1978 resulted from political discontent over

Accepted Answer

A) the high unemployment rates of the late 1970s. 
B) the low interest rates of the late 1970s, which were discouraging saving. 
C) the procyclical monetary policy being conducted by the Fed. 
D) the countercyclical monetary policy being conducted by the Fed. 
A) the high unemployment rates of the late 1970s. 
B) the low interest rates of the late 1970s, which were discouraging saving. 
C) the procyclical monetary policy being conducted by the Fed. 
D) the countercyclical monetary policy being conducted by the Fed.

Question 7

The unemployment that is caused by changes in the economy, such as shifts in manufacturing techniques, increased use of computers and electronic machines, and increases in the production of services instead of goods, is called

Accepted Answer

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

Question 8

The Fed's monetary policy tools

Accepted Answer

A) have proven to be of little value in helping the Fed to achieve its monetary policy goals. 
B) have allowed the Fed to achieve its monetary policy goals directly. 
C) have allowed the Fed to achieve its monetary policy goals indirectly. 
D) are no longer as effective in achieving its monetary policy goals, due to restrictive legislation passed by Congress in the 1990s. 
A) have proven to be of little value in helping the Fed to achieve its monetary policy goals. 
B) have allowed the Fed to achieve its monetary policy goals directly. 
C) have allowed the Fed to achieve its monetary policy goals indirectly. 
D) are no longer as effective in achieving its monetary policy goals, due to restrictive legislation passed by Congress in the 1990s.

Question 9

A falling dollar makes U.S. goods

Accepted Answer

A) more expensive abroad and increases the volume of U.S. exports. 
B) less expensive abroad and increases the volume of U.S. exports. 
C) less expensive abroad and decreases the volume of U.S. exports. 
D) more expensive abroad and decreases the volume of U.S. exports. 
A) more expensive abroad and increases the volume of U.S. exports. 
B) less expensive abroad and increases the volume of U.S. exports. 
C) less expensive abroad and decreases the volume of U.S. exports. 
D) more expensive abroad and decreases the volume of U.S. exports.

Question 10

Which chair of the Fed advocated that the Fed engage in inflation targeting?

Accepted Answer

A) Greenspan 
B) Bernanke 
C) Volcker 
D) Martin 
A) Greenspan 
B) Bernanke 
C) Volcker 
D) Martin

Question 11

Sally Jones lost her job at a steel company because of a permanent decline in the demand for steel. Sally Jones is considered by economists to be

Accepted Answer

A) naturally unemployed. 
B) cyclically unemployed. 
C) structurally unemployed. 
D) frictionally unemployed. 
A) naturally unemployed. 
B) cyclically unemployed. 
C) structurally unemployed. 
D) frictionally unemployed.

Question 12

If the financial side of the economy is stable,

Accepted Answer

A) the demand for money and nonmoney assets is unstable. 
B) money supply targets are preferred. 
C) interest rate targets are preferred. 
D) the real side of the economy must be unstable. 
A) the demand for money and nonmoney assets is unstable. 
B) money supply targets are preferred. 
C) interest rate targets are preferred. 
D) the real side of the economy must be unstable.

Question 13

Most economists believe that a zero rate of unemployment

Accepted Answer

A) is obtainable with the correct monetary policy. 
B) would result in a better functioning economy. 
C) is inconsistent with a well-functioning economy. 
D) is obtainable only if the inflation rate is also zero. 
A) is obtainable with the correct monetary policy. 
B) would result in a better functioning economy. 
C) is inconsistent with a well-functioning economy. 
D) is obtainable only if the inflation rate is also zero.

Question 14

A rising dollar makes U.S. goods

Accepted Answer

A) more expensive abroad and increases the volume of U.S. exports. 
B) less expensive abroad and increases the volume of U.S. exports. 
C) less expensive abroad and decreases the volume of U.S. exports. 
D) more expensive abroad and decreases the volume of U.S. exports. 
A) more expensive abroad and increases the volume of U.S. exports. 
B) less expensive abroad and increases the volume of U.S. exports. 
C) less expensive abroad and decreases the volume of U.S. exports. 
D) more expensive abroad and decreases the volume of U.S. exports.

Question 15

The Fed has ignored advice to use a broad variable such as the stock of nonfinancial credit or nominal GDP as an intermediate target because

Accepted Answer

A) such broad targets are not allowable under the provisions of the Federal Reserve Act. 
B) such broad targets are not easily measurable. 
C) such broad targets are not easily controllable. 
D) of congressional pressure to use M1 as the intermediate target. 
A) such broad targets are not allowable under the provisions of the Federal Reserve Act. 
B) such broad targets are not easily measurable. 
C) such broad targets are not easily controllable. 
D) of congressional pressure to use M1 as the intermediate target.

Question 16

If the Fed chooses M1 as its intermediate target, it will likely choose as its operating target

Accepted Answer

A) a reserve aggregate. 
B) the federal funds rate. 
C) M2. 
D) either a reserve aggregate or the federal funds rate, depending on whether the economy is in an expansion or a recession. 
A) a reserve aggregate. 
B) the federal funds rate. 
C) M2. 
D) either a reserve aggregate or the federal funds rate, depending on whether the economy is in an expansion or a recession.

Question 17

The Fed uses operating targets as well as intermediate targets because

Accepted Answer

A) the Federal Reserve Act of 1913 requires it to do so. 
B) the Fed controls intermediate targets only indirectly. 
C) the public is much more unfamiliar with the variables used as operating targets, so for policy to be effective intermediate targets must also be announced. 
D) if one set of targets proves ineffective in attaining policy goals, the other set is available. 
A) the Federal Reserve Act of 1913 requires it to do so. 
B) the Fed controls intermediate targets only indirectly. 
C) the public is much more unfamiliar with the variables used as operating targets, so for policy to be effective intermediate targets must also be announced. 
D) if one set of targets proves ineffective in attaining policy goals, the other set is available.

Question 18

If shifts in the money demand relationship occur frequently, targeting the money supply will lead to

Accepted Answer

A) higher interest rates. 
B) lower interest rates. 
C) money supply fluctuations that will destabilize the economy. 
D) interest rate fluctuations that will destabilize the economy. 
A) higher interest rates. 
B) lower interest rates. 
C) money supply fluctuations that will destabilize the economy. 
D) interest rate fluctuations that will destabilize the economy.

Question 19

When all workers who want jobs have them and the demand for and supply of labor are in equilibrium,

Accepted Answer

A) the unemployment rate will be zero. 
B) unemployment is at its natural rate. 
C) the economy will be experiencing high rates of inflation. 
D) frictional unemployment will be zero. 
A) the unemployment rate will be zero. 
B) unemployment is at its natural rate. 
C) the economy will be experiencing high rates of inflation. 
D) frictional unemployment will be zero.

Question 20

During the term of Arthur Burns as chairman of the Fed, the FOMC gave top priority to

Accepted Answer

A) fighting unemployment. 
B) stabilizing M1. 
C) stabilizing M2. 
D) stabilizing the federal funds rate. 
A) fighting unemployment. 
B) stabilizing M1. 
C) stabilizing M2. 
D) stabilizing the federal funds rate.

Exam 21: The Conduct of Monetary Policy

Shocks to the U.S. economy in the early 2000s included all of the following EXCEPT

Using a monetary aggregate for an intermediate target

Federal deposit insurance

According to William McChesney Martin, an increase in free reserves indicated

Why did Monetarist critics of the Fed welcome the appointment of Arthur Burns as chairman of the Board of Governors in 1970?

The Humphrey-Hawkins Act of 1978 resulted from political discontent over

The unemployment that is caused by changes in the economy, such as shifts in manufacturing techniques, increased use of computers and electronic machines, and increases in the production of services instead of goods, is called

The Fed's monetary policy tools

A falling dollar makes U.S. goods

Which chair of the Fed advocated that the Fed engage in inflation targeting?

Sally Jones lost her job at a steel company because of a permanent decline in the demand for steel. Sally Jones is considered by economists to be

If the financial side of the economy is stable,

Most economists believe that a zero rate of unemployment

A rising dollar makes U.S. goods

The Fed has ignored advice to use a broad variable such as the stock of nonfinancial credit or nominal GDP as an intermediate target because

If the Fed chooses M1 as its intermediate target, it will likely choose as its operating target

The Fed uses operating targets as well as intermediate targets because

If shifts in the money demand relationship occur frequently, targeting the money supply will lead to

When all workers who want jobs have them and the demand for and supply of labor are in equilibrium,

During the term of Arthur Burns as chairman of the Fed, the FOMC gave top priority to

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

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