Question 1

If prices are not stable:

Accepted Answer

A)  money becomes less useful as a store of value. 
B)  money performs better as a unit of account. 
C)  it may be an inconvenience, but resources are still allocated efficiently. 
D)  prices become highly useful for conveying information. 
A)  money becomes less useful as a store of value. 
B)  money performs better as a unit of account. 
C)  it may be an inconvenience, but resources are still allocated efficiently. 
D)  prices become highly useful for conveying information.

Question 2

Since the Federal Reserve was created, it has:

Accepted Answer

A)  averted all financial panics that could have plagued the U.S. economy. 
B)  averted a few financial panics but not most. 
C)  improved its skill at securing financial stability. 
D)  proved to be much better at preventing international panics than domestic ones. 
A)  averted all financial panics that could have plagued the U.S. economy. 
B)  averted a few financial panics but not most. 
C)  improved its skill at securing financial stability. 
D)  proved to be much better at preventing international panics than domestic ones.

Question 3

Explain why inflation degrades the information content of prices.

Accepted Answer

For markets to work efficiently, prices

Question 4

Why might the central bankers in emerging market economies focus more attention on a stable exchange rate than say the Federal Reserve or the European Central Bank?

Accepted Answer

For emerging market economies the level

Question 5

The stability of the financial system is enhanced by the ability of central banks to:

Accepted Answer

A)  be a lender of last resort. 
B)  provide loans to insolvent banks. 
C)  provide deposit insurance. 
D)  convert poorly run banks into branches of the central bank. 
A)  be a lender of last resort. 
B)  provide loans to insolvent banks. 
C)  provide deposit insurance. 
D)  convert poorly run banks into branches of the central bank.

Question 6

The 1990s saw inflation fall and real growth increase in the U.S. and in many other countries. This is partially attributed to all of the following except:

Accepted Answer

A)  technological innovation. 
B)  redesign of many central banks. 
C)  central banks became better at their jobs. 
D)  central banks focused more on exchange rates in a global environment. 
A)  technological innovation. 
B)  redesign of many central banks. 
C)  central banks became better at their jobs. 
D)  central banks focused more on exchange rates in a global environment.

Question 7

The Federal Reserve's policy regarding announcing its policy decisions has:

Accepted Answer

A)  always been to announce it immediately; that was part of the original Federal Reserve Act of 1913. 
B)  only recently gone to immediate announcement; until 1994 these policy decisions were secret. 
C)  been to release the decisions immediately since its early failure at preventing the Great Depression. 
D)  changed so that now the Fed does not release its decisions publicly. 
A)  always been to announce it immediately; that was part of the original Federal Reserve Act of 1913. 
B)  only recently gone to immediate announcement; until 1994 these policy decisions were secret. 
C)  been to release the decisions immediately since its early failure at preventing the Great Depression. 
D)  changed so that now the Fed does not release its decisions publicly.

Question 8

Most central banks of industrialized countries have monetary policy formed by:

Accepted Answer

A)  an individual, usually the minister of finance. 
B)  their version of Congress. 
C)  a committee made up of members of their central bank. 
D)  an individual, usually the person heading the central bank at the time. 
A)  an individual, usually the minister of finance. 
B)  their version of Congress. 
C)  a committee made up of members of their central bank. 
D)  an individual, usually the person heading the central bank at the time.

Question 9

What do modern central bankers not do?

Accepted Answer

A modern central bank does not control s

Question 10

Higher than expected inflation will increase the:

Accepted Answer

A)  real interest rate borrowers pay on fixed rate mortgages. 
B)  nominal amounts people need to save for retirement. 
C)  real interest rate savers earn on fixed rate CDs. 
D)  real interest rates both paid on mortgages and earned on CDs. 
A)  real interest rate borrowers pay on fixed rate mortgages. 
B)  nominal amounts people need to save for retirement. 
C)  real interest rate savers earn on fixed rate CDs. 
D)  real interest rates both paid on mortgages and earned on CDs.

Question 11

Many governments give their central bank control over issuing currency because:

Accepted Answer

A)  printing currency can be profitable for a government so government officials may have a strong incentive to print too much. 
B)  having large amounts of currency can lead to lower rates of inflation. 
C)  central banks use the profits from issuing currency to finance their operations. 
D)  the only way to distribute currency to banks is through the central bank. 
A)  printing currency can be profitable for a government so government officials may have a strong incentive to print too much. 
B)  having large amounts of currency can lead to lower rates of inflation. 
C)  central banks use the profits from issuing currency to finance their operations. 
D)  the only way to distribute currency to banks is through the central bank.

Question 12

The problem for a central bank setting a zero inflation policy would be:

Accepted Answer

A)  the risk of high employment. 
B)  it is impossible to have zero inflation. 
C)  firms would have to cut the nominal wage to reduce the real wage. 
D)  economic growth would also have to be zero. 
A)  the risk of high employment. 
B)  it is impossible to have zero inflation. 
C)  firms would have to cut the nominal wage to reduce the real wage. 
D)  economic growth would also have to be zero.

Question 13

The specific goals of central banks include all of the following except:

Accepted Answer

A)  high stock prices. 
B)  low and stable inflation. 
C)  high and stable real growth. 
D)  a stable exchange rate. 
A)  high stock prices. 
B)  low and stable inflation. 
C)  high and stable real growth. 
D)  a stable exchange rate.

Question 14

In its role as the bankers' bank, a central bank performs each of the following, except:

Accepted Answer

A)  providing loans during times of financial distress. 
B)  providing deposit insurance. 
C)  overseeing commercial banks and the financial system. 
D)  managing the payments system. 
A)  providing loans during times of financial distress. 
B)  providing deposit insurance. 
C)  overseeing commercial banks and the financial system. 
D)  managing the payments system.

Question 15

We have a country, Fantasyland, where the current per capita real income is 20,000 units of output, and the current average growth rate is 2.0 percent. What will be the difference in the standard of living twenty years from now if Fantasyland grows at a rate of 3.5 percent and we assume population is constant?

Accepted Answer

We can use a financial calculator or exp

Question 16

Which of the following is the best analogy? Inflation is like:

Accepted Answer

A)  a pound having more ounces. 
B)  a day having more hours. 
C)  a minute having fewer seconds. 
D)  a mile having more feet. 
A)  a pound having more ounces. 
B)  a day having more hours. 
C)  a minute having fewer seconds. 
D)  a mile having more feet.

Question 17

One argument for an independent central bank is:

Accepted Answer

A)  successful monetary policy requires a long time horizon usually well beyond the next election of most public officials. 
B)  without independence competent people would not take a position in a central bank. 
C)  the central bank usually hires more competent individuals than the Treasury department or other finance ministries. 
D)  central bankers have a short-run focus that usually corrects problems faster. 
A)  successful monetary policy requires a long time horizon usually well beyond the next election of most public officials. 
B)  without independence competent people would not take a position in a central bank. 
C)  the central bank usually hires more competent individuals than the Treasury department or other finance ministries. 
D)  central bankers have a short-run focus that usually corrects problems faster.

Question 18

Compared to an independent central bank, elected officials are likely to:

Accepted Answer

A)  favor long-run stability over short-term prosperity. 
B)  sacrifice short-term growth to keep future inflation low. 
C)  choose monetary policies that are overly accommodative. 
D)  prefer interest rates to vary more often. 
A)  favor long-run stability over short-term prosperity. 
B)  sacrifice short-term growth to keep future inflation low. 
C)  choose monetary policies that are overly accommodative. 
D)  prefer interest rates to vary more often.

Question 19

A primary goal of central banks is to:

Accepted Answer

A)  reduce the idiosyncratic risk that impacts specific investments. 
B)  reduce systematic risk. 
C)  keep stock and bond prices high. 
D)  keep inflation rates high. 
A)  reduce the idiosyncratic risk that impacts specific investments. 
B)  reduce systematic risk. 
C)  keep stock and bond prices high. 
D)  keep inflation rates high.

Question 20

If a government were to find that it cannot raise taxes any further, and that it cannot borrow any further from financial markets, the government:

Accepted Answer

A)  cannot increase its spending any further. 
B)  can increase spending by having the central banks purchase its bonds. 
C)  is in default. 
D)  can decrease the amount of money in circulation. 
A)  cannot increase its spending any further. 
B)  can increase spending by having the central banks purchase its bonds. 
C)  is in default. 
D)  can decrease the amount of money in circulation.

Exam 15: Central Banks in the World Today

If prices are not stable:

Since the Federal Reserve was created, it has:

Explain why inflation degrades the information content of prices.

Why might the central bankers in emerging market economies focus more attention on a stable exchange rate than say the Federal Reserve or the European Central Bank?

The stability of the financial system is enhanced by the ability of central banks to:

The 1990s saw inflation fall and real growth increase in the U.S. and in many other countries. This is partially attributed to all of the following except:

The Federal Reserve's policy regarding announcing its policy decisions has:

Most central banks of industrialized countries have monetary policy formed by:

What do modern central bankers not do?

Higher than expected inflation will increase the:

Many governments give their central bank control over issuing currency because:

The problem for a central bank setting a zero inflation policy would be:

The specific goals of central banks include all of the following except:

In its role as the bankers' bank, a central bank performs each of the following, except:

Which of the following is the best analogy? Inflation is like:

One argument for an independent central bank is:

Compared to an independent central bank, elected officials are likely to:

A primary goal of central banks is to:

If a government were to find that it cannot raise taxes any further, and that it cannot borrow any further from financial markets, the government:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange Rate Policy and the Central Bank

Money Growth, Money Demand and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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