Question 1

One key difference between the Fed and the European Central Bank (ECB) in their reserve requirements is that the:

Accepted Answer

A)  reserve requirements of the ECB are at a much higher rate than the Fed's.? 
B)  ECB's reserve requirements are more difficult for banks to predict.? 
C)  reserve requirement of the ECB are determined annually.? 
D)  ECB reserve requirement is based on all of a bank's liabilities. 
A)  reserve requirements of the ECB are at a much higher rate than the Fed's.? 
B)  ECB's reserve requirements are more difficult for banks to predict.? 
C)  reserve requirement of the ECB are determined annually.? 
D)  ECB reserve requirement is based on all of a bank's liabilities.

Question 2

The European Central Bank's equivalent of the Fed's open market operations (OMO) is: ?

Accepted Answer

A)  very similar to the Fed's OMO in that they are highly centralized.? 
B)  dissimilar to the Fed's OMO in that the operations are conducted at all 19 of the National Central Banks simultaneously.? 
C)  similar to the Fed's OMO in that they accept only U.S. Treasury securities in their refinancing operations.? 
D)  dissimilar to the Fed's OMO because fewer banks participate in the auctions of the securities. 
A)  very similar to the Fed's OMO in that they are highly centralized.? 
B)  dissimilar to the Fed's OMO in that the operations are conducted at all 19 of the National Central Banks simultaneously.? 
C)  similar to the Fed's OMO in that they accept only U.S. Treasury securities in their refinancing operations.? 
D)  dissimilar to the Fed's OMO because fewer banks participate in the auctions of the securities.

Question 3

Reserves currently are so abundant that: ?

Accepted Answer

A)  the federal funds rate is not easily manipulated with open market operations.? 
B)  the Fed cannot affect the federal funds rate.? 
C)  the Fed prefers to target the discount rate.? 
D)  the IOER rate is ineffective. 
A)  the federal funds rate is not easily manipulated with open market operations.? 
B)  the Fed cannot affect the federal funds rate.? 
C)  the Fed prefers to target the discount rate.? 
D)  the IOER rate is ineffective.

Question 4

Which of the following statements is most correct if the Fed sees no need to engage in expansionary monetary policy? ?

Accepted Answer

A)  The Fed will likely shrink its balance sheet rapidly.? 
B)  Eventually, the Fed will shrink its balance sheet by letting securities it holds expire.? 
C)  It will be impossible for the Fed to shrink its balance sheet.? 
D)  The Fed is likely to increase the size of its balance sheet. 
A)  The Fed will likely shrink its balance sheet rapidly.? 
B)  Eventually, the Fed will shrink its balance sheet by letting securities it holds expire.? 
C)  It will be impossible for the Fed to shrink its balance sheet.? 
D)  The Fed is likely to increase the size of its balance sheet.

Question 5

State and briefly define the tools of monetary policy available to the Federal Reserve.

Accepted Answer

The tools are: (1) the target federal fu

Question 6

What is your response to the following: "The Taylor rule shows a strong correlation between the target rate actually set by the FOMC and the one predicted by the rule. Since the Taylor rule would provide accountability, credibility, and transparency, the FOMC committee should be dissolved and replaced by a form of the Taylor rule."

Accepted Answer

The first was declaring a commitment to

Question 7

The reserve requirement does not meet all of the criteria of a good monetary policy tool, because it: ?

Accepted Answer

A)  is not controllable.? 
B)  is not observable.? 
C)  cannot be quickly changed.? 
D)  it has a predictable impact on the economy. 
A)  is not controllable.? 
B)  is not observable.? 
C)  cannot be quickly changed.? 
D)  it has a predictable impact on the economy.

Question 8

The European Central Bank's Marginal Lending Facility is used to provide: ?

Accepted Answer

A)  short-term loans to banks at rates below the target refinancing rate.? 
B)  long-term loans to banks at rates above the target refinancing rate.? 
C)  short-term loans at rates above the target refinancing rate.? 
D)  long-term loans to banks at rates below the target refinancing rate. 
A)  short-term loans to banks at rates below the target refinancing rate.? 
B)  long-term loans to banks at rates above the target refinancing rate.? 
C)  short-term loans at rates above the target refinancing rate.? 
D)  long-term loans to banks at rates below the target refinancing rate.

Question 9

The ways the Fed can inject reserves into the banking system include: ?

Accepted Answer

A)  an increase in the size of the Fed's balance sheet through purchasing securities.? 
B)  increasing the discount rate.? 
C)  making loans to non-bank corporations.? 
D)  an increase in the size of the Fed's balance sheet through selling securities. 
A)  an increase in the size of the Fed's balance sheet through purchasing securities.? 
B)  increasing the discount rate.? 
C)  making loans to non-bank corporations.? 
D)  an increase in the size of the Fed's balance sheet through selling securities.

Question 10

Inflation targeting does all of the following except: ?

Accepted Answer

A)  increase policymakers' credibility.? 
B)  increase policymakers' accountability.? 
C)  communicate policymakers' objectives clearly and openly.? 
D)  hinder economic growth. 
A)  increase policymakers' credibility.? 
B)  increase policymakers' accountability.? 
C)  communicate policymakers' objectives clearly and openly.? 
D)  hinder economic growth.

Question 11

The fact that there is a market for federal funds enables banks to: ?

Accepted Answer

A)  make fewer loans than they would otherwise.? 
B)  borrow more from the Fed.? 
C)  hold a lower level of excess reserves than they would otherwise hold.? 
D)  hold less in required reserves. 
A)  make fewer loans than they would otherwise.? 
B)  borrow more from the Fed.? 
C)  hold a lower level of excess reserves than they would otherwise hold.? 
D)  hold less in required reserves.

Question 12

Raising interest rates following the use of unconventional policy tools depend on

Accepted Answer

A)  the size and composition of the central bank's balance sheet. 
B)  the toolbox available to the central bank. 
C)  both the size and composition of the central bank's balance sheet and the toolbox available to the central bank. 
D)  neither the size and composition of the central bank's balance sheet and the toolbox available to the central bank. 
A)  the size and composition of the central bank's balance sheet. 
B)  the toolbox available to the central bank. 
C)  both the size and composition of the central bank's balance sheet and the toolbox available to the central bank. 
D)  neither the size and composition of the central bank's balance sheet and the toolbox available to the central bank.

Question 13

Since 2002, the Fed has set the primary discount rate above the IOER rate. Why is this likely to prevent the spikes in the market federal funds similar to the ones that occurred in previous years?

Accepted Answer

Prior to 2002 the Fed discouraged banks

Question 14

Explain the three desirable features of a good monetary policy instrument.

Accepted Answer

The desirable features of a policy instr

Question 15

Given the following formula for the Taylor rule: ?Target federal funds rate = natural rate of interest + current inflation + ½(inflation gap) +½(output gap) if the current rate of inflation is 5%, the natural rate of interest is 2%, and the target rate of inflation is 2%, and output is 3% above its potential, the target federal funds rate would be: ?

Accepted Answer

A)  6.5%.? 
B)  2.5%.? 
C)  3.5%.? 
D)  10%. 
A)  6.5%.? 
B)  2.5%.? 
C)  3.5%.? 
D)  10%.

Question 16

Given the following Taylor rule: 
Target federal funds rate = natural rate of interest + current inflation + ½(inflation gap) +½(output gap)
Explain what happens to the real interest rate and why it happens, each time inflation increases by 1 percent.

Accepted Answer

Each time inflation increases by 1 perce

Question 17

Discuss the key criteria for success and the advantages of a central bank adopting the framework of inflation targeting.

Accepted Answer

Inflation targeting is a framework where

Question 18

Primary credit extended by the Fed is: ?

Accepted Answer

A)  for banks needing long-term loans to work out financial problems.? 
B)  the highest interest rate loans offered by the Fed.? 
C)  short-term, usually overnight loans.? 
D)  loans offered at the prime interest rate for periods exceeding thirty days but less than one year. 
A)  for banks needing long-term loans to work out financial problems.? 
B)  the highest interest rate loans offered by the Fed.? 
C)  short-term, usually overnight loans.? 
D)  loans offered at the prime interest rate for periods exceeding thirty days but less than one year.

Question 19

The principle tool the Fed uses to keep the federal funds rate close to the target is: ?

Accepted Answer

A)  the required reserve rate.? 
B)  discount lending.? 
C)  open market operations.? 
D)  the IOER rate. 
A)  the required reserve rate.? 
B)  discount lending.? 
C)  open market operations.? 
D)  the IOER rate.

Question 20

The interest on excess reserves is: ?

Accepted Answer

A)  the upper bound of the federal funds target rate range.? 
B)  the lower bound of the federal funds target rate range.? 
C)  unrelated to the federal funds target rate range.? 
D)  the target federal funds rate. 
A)  the upper bound of the federal funds target rate range.? 
B)  the lower bound of the federal funds target rate range.? 
C)  unrelated to the federal funds target rate range.? 
D)  the target federal funds rate.

Exam 18:Monetary Policy: Stabilizing the Domestic Economy

One key difference between the Fed and the European Central Bank (ECB) in their reserve requirements is that the:

The European Central Bank's equivalent of the Fed's open market operations (OMO) is: ?

Reserves currently are so abundant that: ?

Which of the following statements is most correct if the Fed sees no need to engage in expansionary monetary policy? ?

State and briefly define the tools of monetary policy available to the Federal Reserve.

The reserve requirement does not meet all of the criteria of a good monetary policy tool, because it: ?

The European Central Bank's Marginal Lending Facility is used to provide: ?

The ways the Fed can inject reserves into the banking system include: ?

Inflation targeting does all of the following except: ?

The fact that there is a market for federal funds enables banks to: ?

Raising interest rates following the use of unconventional policy tools depend on

Since 2002, the Fed has set the primary discount rate above the IOER rate. Why is this likely to prevent the spikes in the market federal funds similar to the ones that occurred in previous years?

Explain the three desirable features of a good monetary policy instrument.

Given the following Taylor rule: Target federal funds rate = natural rate of interest + current inflation + ½(inflation gap) +½(output gap) Explain what happens to the real interest rate and why it happens, each time inflation increases by 1 percent.

Discuss the key criteria for success and the advantages of a central bank adopting the framework of inflation targeting.

Primary credit extended by the Fed is: ?

The principle tool the Fed uses to keep the federal funds rate close to the target is: ?

The interest on excess reserves is: ?

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

Central Banks in the World Today

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

The Central Bank Balance Sheet and the Money Supply Process

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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