Question 1

Under the Federal Reserve-Treasury Accord of 1951,

Accepted Answer

A) the Fed promised to peg interest rates at a level agreed on with the Treasury. 
B) the Fed stopped pegging interest rates. 
C) the Secretary of the Treasury was removed from the Board of Governors. 
D) the Treasury lost its power to set required reserve ratios. 
A) the Fed promised to peg interest rates at a level agreed on with the Treasury. 
B) the Fed stopped pegging interest rates. 
C) the Secretary of the Treasury was removed from the Board of Governors. 
D) the Treasury lost its power to set required reserve ratios.

Question 2

As of 2006, which of the following central banks has formally adopted inflation targeting as its strategy for monetary policy?

Accepted Answer

A) Fed 
B) ECB 
C) Bank of Japan 
D) Bank of England 
A) Fed 
B) ECB 
C) Bank of Japan 
D) Bank of England

Question 3

The Fed had particular difficulty during the 1970s in attempting to control both the federal funds rate and monetary aggregates because

Accepted Answer

A) of fluctuations in consumer and business spending. 
B) the federal funds rate is inherently unstable. 
C) of the impact of the savings-and-loan crisis. 
D) actions of the nonbank public made the money multiplier very unstable. 
A) of fluctuations in consumer and business spending. 
B) the federal funds rate is inherently unstable. 
C) of the impact of the savings-and-loan crisis. 
D) actions of the nonbank public made the money multiplier very unstable.

Question 4

Interest rate fluctuations

Accepted Answer

A) are usually not considered to be of much importance and are largely ignored by the Fed. 
B) have the paradoxical effect of increasing the rate of economic growth. 
C) make it difficult for households and firms to plan for the future. 
D) have largely been eliminated by the Fed during the past two decades. 
A) are usually not considered to be of much importance and are largely ignored by the Fed. 
B) have the paradoxical effect of increasing the rate of economic growth. 
C) make it difficult for households and firms to plan for the future. 
D) have largely been eliminated by the Fed during the past two decades.

Question 5

High employment spurs economic growth because high employment

Accepted Answer

A) usually reduces inflation. 
B) discourages foreign imports. 
C) often leads to a high birth rate. 
D) often leads to high rates of investment. 
A) usually reduces inflation. 
B) discourages foreign imports. 
C) often leads to a high birth rate. 
D) often leads to high rates of investment.

Question 6

In practice, the ECB has committed to what type of strategy for monetary policy?

Accepted Answer

A) Inflation targeting 
B) Monetary targeting 
C) Unclear as to inflation or monetary targeting 
D) Exchange rate targeting 
A) Inflation targeting 
B) Monetary targeting 
C) Unclear as to inflation or monetary targeting 
D) Exchange rate targeting

Question 7

During the time William McChesney Martin was chair of the Fed, free reserves were used

Accepted Answer

A) as an indicator, but not as a target. 
B) as a target, but not as an indicator. 
C) as both an indicator and as a target. 
D) as neither an indicator nor as a target. 
A) as an indicator, but not as a target. 
B) as a target, but not as an indicator. 
C) as both an indicator and as a target. 
D) as neither an indicator nor as a target.

Question 8

What is meant by inflation targeting? Does the Fed engage in inflation targeting?

Accepted Answer

Under inflation targeting a central bank

Question 9

In July 1993, Alan Greenspan informed the Congress that the Fed would

Accepted Answer

A) attempt to fight inflation by narrowing the bands within which it allowed M1 and M2 to fluctuate. 
B) cease its emphasis on using M1 or M2 targets to guide the conduct of monetary policy. 
C) shift its emphasis from fighting inflation to fighting unemployment. 
D) concentrate on increasing the value of the dollar, particularly with respect to the yen and the mark. 
A) attempt to fight inflation by narrowing the bands within which it allowed M1 and M2 to fluctuate. 
B) cease its emphasis on using M1 or M2 targets to guide the conduct of monetary policy. 
C) shift its emphasis from fighting inflation to fighting unemployment. 
D) concentrate on increasing the value of the dollar, particularly with respect to the yen and the mark.

Question 10

Which of the following is considered a significant drawback of using interest rate targets?

Accepted Answer

A) Monetary aggregates are clearly preferable on the basis of the criterion of controllability. 
B) Monetary aggregates are clearly preferable on the basis of the criterion of measurability. 
C) A Fed policy to stabilize interest rates may be inconsistent with the Fed's goal of maintaining steady economic growth. 
D) The Fed's influence over nominal interest rates is weaker than its influence over real interest rates. 
A) Monetary aggregates are clearly preferable on the basis of the criterion of controllability. 
B) Monetary aggregates are clearly preferable on the basis of the criterion of measurability. 
C) A Fed policy to stabilize interest rates may be inconsistent with the Fed's goal of maintaining steady economic growth. 
D) The Fed's influence over nominal interest rates is weaker than its influence over real interest rates.

Question 11

When Paul Volcker became chair of the Fed in 1979, his primary commitment was to

Accepted Answer

A) reduce inflation. 
B) reduce unemployment. 
C) increase economic growth. 
D) restore financial market stability. 
A) reduce inflation. 
B) reduce unemployment. 
C) increase economic growth. 
D) restore financial market stability.

Question 12

By the end of the 1990s and 2000s,

Accepted Answer

A) the reputation of the Fed had declined substantially. 
B) the influence and prestige of the Fed had increased. 
C) Paul Volcker had replaced Alan Greenspan as Chairman of the Board of Governors. 
D) the inflation rate had soared, calling into question the Fed's monetary policy. 
A) the reputation of the Fed had declined substantially. 
B) the influence and prestige of the Fed had increased. 
C) Paul Volcker had replaced Alan Greenspan as Chairman of the Board of Governors. 
D) the inflation rate had soared, calling into question the Fed's monetary policy.

Question 13

The quantity of M1 demanded varies inversely with market interest rates because

Accepted Answer

A) higher market interest rates lead the public to demand more money to make investments with. 
B) high interest rates discourage investments in fixed capital. 
C) market interest rates represent the opportunity cost of holding M1. 
D) high interest rates encourage banks to make more loans. 
A) higher market interest rates lead the public to demand more money to make investments with. 
B) high interest rates discourage investments in fixed capital. 
C) market interest rates represent the opportunity cost of holding M1. 
D) high interest rates encourage banks to make more loans.

Question 14

Under William McChesney Martin, the Fed began to target free reserves, which are

Accepted Answer

A) another name for excess reserves. 
B) the difference between excess reserves and borrowed reserves. 
C) the difference between borrowed reserves and discount loans. 
D) the difference between total reserves and borrowed reserves. 
A) another name for excess reserves. 
B) the difference between excess reserves and borrowed reserves. 
C) the difference between borrowed reserves and discount loans. 
D) the difference between total reserves and borrowed reserves.

Question 15

The Fed's difficulties in producing greater monetary control after October 1979 were attributable to

Accepted Answer

A) fluctuations in the economy and in financial markets. 
B) using free reserves as an operating target. 
C) the agreement with the Treasury to peg interest rates. 
D) using nonborrowed reserves as an operating target. 
A) fluctuations in the economy and in financial markets. 
B) using free reserves as an operating target. 
C) the agreement with the Treasury to peg interest rates. 
D) using nonborrowed reserves as an operating target.

Question 16

What has been the approach of the European Central Bank to monetary targeting?

Accepted Answer

Although the European Central

Exam 21: The Conduct of Monetary Policy

Under the Federal Reserve-Treasury Accord of 1951,

As of 2006, which of the following central banks has formally adopted inflation targeting as its strategy for monetary policy?

The Fed had particular difficulty during the 1970s in attempting to control both the federal funds rate and monetary aggregates because

Interest rate fluctuations

High employment spurs economic growth because high employment

In practice, the ECB has committed to what type of strategy for monetary policy?

During the time William McChesney Martin was chair of the Fed, free reserves were used

What is meant by inflation targeting? Does the Fed engage in inflation targeting?

In July 1993, Alan Greenspan informed the Congress that the Fed would

Which of the following is considered a significant drawback of using interest rate targets?

When Paul Volcker became chair of the Fed in 1979, his primary commitment was to

By the end of the 1990s and 2000s,

The quantity of M1 demanded varies inversely with market interest rates because

Under William McChesney Martin, the Fed began to target free reserves, which are

The Fed's difficulties in producing greater monetary control after October 1979 were attributable to

What has been the approach of the European Central Bank to monetary targeting?

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