Question 1

If the relationship between consumer and business spending and investment decisions and the interest rate is stable,

Accepted Answer

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

Question 2

In 1995, then Senator Connie Mack of Florida introduced a bill that

Accepted Answer

A) would force the Fed to focus almost entirely on achieving price stability. 
B) would force the Fed to rely entirely on interest rate targets. 
C) would force the Fed to keep the unemployment rate below 5%. 
D) place the Secretary of the Treasury on the Board of Governors. 
A) would force the Fed to focus almost entirely on achieving price stability. 
B) would force the Fed to rely entirely on interest rate targets. 
C) would force the Fed to keep the unemployment rate below 5%. 
D) place the Secretary of the Treasury on the Board of Governors.

Question 3

If the Fed is targeting interest rates, then during an economic downturn it will take actions that will

Accepted Answer

A) raise interest rates, thus spurring economic growth. 
B) raise interest rates, thus slowing economic growth. 
C) lower interest rates, thus spurring economic growth. 
D) lower interest rates, thus slowing economic growth. 
A) raise interest rates, thus spurring economic growth. 
B) raise interest rates, thus slowing economic growth. 
C) lower interest rates, thus spurring economic growth. 
D) lower interest rates, thus slowing economic growth.

Question 4

The Fed's interest in targets emerged

Accepted Answer

A) because the Federal Reserve Act mandated that targets be specified. 
B) following its difficulties during the Great Depression. 
C) in the early 1950s, following its struggle with the U.S. Treasury for control of monetary policy. 
D) in an attempt to deal with accelerating inflation during the late 1970s. 
A) because the Federal Reserve Act mandated that targets be specified. 
B) following its difficulties during the Great Depression. 
C) in the early 1950s, following its struggle with the U.S. Treasury for control of monetary policy. 
D) in an attempt to deal with accelerating inflation during the late 1970s.

Question 5

In 2006, the Bank of Japan adopted a policy framework focusing on

Accepted Answer

A) expected inflation one to two years in the future. 
B) current inflation. 
C) maintaining a fixed exchange rate. 
D) the growth in the money supply. 
A) expected inflation one to two years in the future. 
B) current inflation. 
C) maintaining a fixed exchange rate. 
D) the growth in the money supply.

Question 6

Fed officials have argued that deregulation and financial innovation during the 1980s

Accepted Answer

A) have led to higher inflation. 
B) have led to an increase in the volatility of interest rates. 
C) have made M1 less relevant as a measure of the medium of exchange. 
D) have made using free reserves as an operating target more desirable. 
A) have led to higher inflation. 
B) have led to an increase in the volatility of interest rates. 
C) have made M1 less relevant as a measure of the medium of exchange. 
D) have made using free reserves as an operating target more desirable.

Question 7

Suppose that households decrease their demand for checkable deposits. If the Fed is using an interest rate as an intermediate target, will it have to take any action to maintain the target?

Accepted Answer

If the demand for M1 decreases, the Fed

Question 8

The Fed has attempted to solve the problems of being unable to directly control the variables that determine economic performance and the timing lags in observing and reacting to economic fluctuations by

Accepted Answer

A) pressing Congress for legislation which would expand its powers. 
B) using targets to meet its goals. 
C) abandoning some goals in order to achieve others. 
D) devising new monetary policy tools. 
A) pressing Congress for legislation which would expand its powers. 
B) using targets to meet its goals. 
C) abandoning some goals in order to achieve others. 
D) devising new monetary policy tools.

Question 9

Which of the following is an intermediate target?

Accepted Answer

A) M1 
B) Reserves 
C) Federal funds rate 
D) Inflation rate 
A) M1 
B) Reserves 
C) Federal funds rate 
D) Inflation rate

Question 10

Which of the following is NOT considered to be a goal of monetary policy?

Accepted Answer

A) Fair wages 
B) High employment 
C) Economic growth 
D) Price stability 
A) Fair wages 
B) High employment 
C) Economic growth 
D) Price stability

Question 11

If the Fed is targeting interest rates, during an economic downturn it will

Accepted Answer

A) use open market purchases to lower interest rates. 
B) use open market sales to raise interest rates. 
C) avoid open market operations so as not to interfere with the adjustment of interest rates. 
D) impose limitations on the interest rates that banks may charge on credit cards. 
A) use open market purchases to lower interest rates. 
B) use open market sales to raise interest rates. 
C) avoid open market operations so as not to interfere with the adjustment of interest rates. 
D) impose limitations on the interest rates that banks may charge on credit cards.

Question 12

Which of the following is considered to be a goal of monetary policy?

Accepted Answer

A) A low federal budget deficit 
B) Fair wages 
C) Price stability 
D) An end to poverty 
A) A low federal budget deficit 
B) Fair wages 
C) Price stability 
D) An end to poverty

Question 13

Which of the following statements about the natural rate of unemployment is correct?

Accepted Answer

A) In the 1960s, economists thought the natural rate was 4%. 
B) Today, most economists believe the natural rate is zero. 
C) When unemployment is at its natural rate, then only frictional unemployment remains. 
D) When unemployment is at its natural rate, then only structural unemployment remains. 
A) In the 1960s, economists thought the natural rate was 4%. 
B) Today, most economists believe the natural rate is zero. 
C) When unemployment is at its natural rate, then only frictional unemployment remains. 
D) When unemployment is at its natural rate, then only structural unemployment remains.

Question 14

The Employment Act of 1946 codified the federal government's commitment to

Accepted Answer

A) promote high employment consistent with price stability. 
B) promote high employment irrespective of the effects on price stability. 
C) guarantee a job to every unemployed person. 
D) fine companies that engage in excessive layoffs during recessions. 
A) promote high employment consistent with price stability. 
B) promote high employment irrespective of the effects on price stability. 
C) guarantee a job to every unemployed person. 
D) fine companies that engage in excessive layoffs during recessions.

Question 15

According to the Taylor rule, what should the federal funds rate target be if inflation is 5%, the target rate of inflation is 2%, the equilibrium real federal funds rate is 2%, full-employment real GDP is $9 trillion, and current real GDP is $8.55 trillion?

Accepted Answer

Fed funds rate targe

Question 16

During World War II, the Fed pegged interest rates in order to

Accepted Answer

A) stabilize the money supply. 
B) help the Treasury finance the war effort. 
C) control the inflation rate. 
D) encourage home buying. 
A) stabilize the money supply. 
B) help the Treasury finance the war effort. 
C) control the inflation rate. 
D) encourage home buying.

Question 17

The main reason the Fed cannot control the real interest rate is that

Accepted Answer

A) it cannot control expectations of inflation. 
B) M1 fluctuates too widely to allow interest rates to be easily controlled. 
C) M2 fluctuates too widely to allow interest rates to be easily controlled. 
D) the real interest rate is mainly determined by the behavior of banks. 
A) it cannot control expectations of inflation. 
B) M1 fluctuates too widely to allow interest rates to be easily controlled. 
C) M2 fluctuates too widely to allow interest rates to be easily controlled. 
D) the real interest rate is mainly determined by the behavior of banks.

Question 18

Since 1987, the Fed

Accepted Answer

A) has placed greater emphasis on hitting its target for M1 growth. 
B) has pegged the federal funds rate. 
C) no longer announces targets for M1 growth. 
D) has concentrated on the T-bill rate as its intermediate target. 
A) has placed greater emphasis on hitting its target for M1 growth. 
B) has pegged the federal funds rate. 
C) no longer announces targets for M1 growth. 
D) has concentrated on the T-bill rate as its intermediate target.

Question 19

Inflation is an economic problem because it

Accepted Answer

A) leads inevitably to unemployment. 
B) makes prices less useful as signals for resource allocation. 
C) leads to recession. 
D) results in rapid increases in the money supply. 
A) leads inevitably to unemployment. 
B) makes prices less useful as signals for resource allocation. 
C) leads to recession. 
D) results in rapid increases in the money supply.

Question 20

In the mid-1980s, the Fed attempted to

Accepted Answer

A) increase the value of the dollar by raising short-term interest rates. 
B) decrease the value of the dollar by reducing short-term interest rates. 
C) decrease the value of the dollar by raising short-term interest rates. 
D) increase the value of the dollar by reducing short-term interest rates. 
A) increase the value of the dollar by raising short-term interest rates. 
B) decrease the value of the dollar by reducing short-term interest rates. 
C) decrease the value of the dollar by raising short-term interest rates. 
D) increase the value of the dollar by reducing short-term interest rates.

Exam 21: The Conduct of Monetary Policy

If the relationship between consumer and business spending and investment decisions and the interest rate is stable,

In 1995, then Senator Connie Mack of Florida introduced a bill that

If the Fed is targeting interest rates, then during an economic downturn it will take actions that will

The Fed's interest in targets emerged

In 2006, the Bank of Japan adopted a policy framework focusing on

Fed officials have argued that deregulation and financial innovation during the 1980s

Suppose that households decrease their demand for checkable deposits. If the Fed is using an interest rate as an intermediate target, will it have to take any action to maintain the target?

The Fed has attempted to solve the problems of being unable to directly control the variables that determine economic performance and the timing lags in observing and reacting to economic fluctuations by

Which of the following is an intermediate target?

Which of the following is NOT considered to be a goal of monetary policy?

If the Fed is targeting interest rates, during an economic downturn it will

Which of the following is considered to be a goal of monetary policy?

Which of the following statements about the natural rate of unemployment is correct?

The Employment Act of 1946 codified the federal government's commitment to

According to the Taylor rule, what should the federal funds rate target be if inflation is 5%, the target rate of inflation is 2%, the equilibrium real federal funds rate is 2%, full-employment real GDP is $9 trillion, and current real GDP is $8.55 trillion?

During World War II, the Fed pegged interest rates in order to

The main reason the Fed cannot control the real interest rate is that

Since 1987, the Fed

Inflation is an economic problem because it

In the mid-1980s, the Fed attempted 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

Filters